As A Result Of The Iran-Israel Conflict, The Fed Is Predicted To Hold Interest Rates Longer

JAKARTA - Economist and Professor of the Faculty of Economics and Business (FEB) University of Indonesia Marie Elka Pangestu projects that the US Central Bank will hold the benchmark interest rate even longer due to Iran's attack on Israel on Sunday, April 14.

According to Marie, the Fed's move to hold the benchmark interest rate at the level of 5.25-5.50 percent is one of the effects of various other effects such as rising world oil prices, gold prices, to strengthening US dollars.

"So this is a scenario where it is estimated that oil prices will rise, production costs rise, inflation increases and this will affect recovery in the US, slowing down interest rates that should occur in second half of this year," Marie said at the 'Ngobrol Seru Impact of the Iran-Israel Conflict on the Indonesian Economy' held by Eisenhower Fellowships Indonesia Alumni Chapter virtually, Monday, April 15.

Furthermore, on the same occasion, the Economist and former Minister of Research and Technology of the Republic of Indonesia for the 2019-2021 period, Bambang Brodjonegoro, assessed that the Fed would maintain a longer benchmark interest rate due to the high impact of the Middle East conflict escalation.

According to Bambang, the policy will indirectly have an impact on the rupiah exchange rate and the Indonesian economy.

"So basically, externally, we will face serious challenges, and this can make the rupiah depressed," he said.

Bambang assessed that as an anticipatory measure, Bank Indonesia (BI) is expected to intervene in the rupiah exchange rate. "But it is also impossible for BI to just use dollar reserves to intervene because the consequences will be fatal," he explained.

Bambang said that even if BI took steps to raise interest rates, it was not the right step considering the current condition of the US dollar which strengthens against almost all other national currencies as a result of high interest rates.

"In addition now because of Iran-Israel, investors as usual will look for save havens. The safest place is always two, one US dollar, one US treasury bond," he concluded.