OJK: Financial Sector Businesses Need To Pay Attention To The Fed's Policy Movements

JAKARTA - Deputy Commissioner for Financial System Stability of the Financial Services Authority (OJK) Agus E Siregar assesses that financial sector business players need to continue to pay close attention to changes in the attitude or "stance" of the United States central bank The Federal Reserve towards future market movements.

"Historically, about two years before the plan to increase interest rates, the Fed would start to gradually reduce liquidity recovery from the market. Indonesia has a lesson that can be used as a reference, in 2013 we have faced a taper tantrum, and that put pressure on the economy. financial markets in emerging markets," Agus said at an online seminar in Jakarta, quoted from Antara, Tuesday, July 6.

Agus said that the taper tantrum (financial turmoil as a result of the reduction in bond purchases by the US Federal Reserve) in 2013 put pressure on financial markets in developing countries, especially those with high external imbalances.

Currently, the external balance of developing countries is improving, including The Fragile Five, namely Turkey, Brazil, Indonesia, South Africa, and India. However, new vulnerabilities need to be considered, especially if they have a high enough financing burden.

"If we look at Indonesia's current account deficit or CAD compared to GDP, current conditions are better than 2013. Likewise, several other factors. Only one factor in Indonesia that is worse than 2013 is the Debt to Service Ratio, but this is an aspect that has no significant impact. , said Agus.

In 2013, Indonesia's current account deficit (CAD) reached 2.03 percent, while it is currently in the position of 0.36 percent. Inflation in 2013 soared to 8.08 percent, while currently inflation is at 1.68 percent. The portion of foreign ownership in Government Securities (SUN) in 2013 reached 32.5 percent, while it is currently in the position of 23.8 percent.

Meanwhile, the government's Debt to Service Ratio (DSR) in 2013 reached 7.9 percent, while it is currently higher at 17.4 percent.

"The conditions are different, so with the different conditions, hopefully the impact of the taper tantrum, if carried out by the Fed, will not have a significant impact on Indonesia, but it must be observed," said Agus.

The Fed itself has begun to change its attitude in the last Federal Open Market Committee (FOMC) meeting. The US central bank has started to be more strict or hawkish by stating that it plans to increase the Fed Funds rate reference rate in 2023.

"So if the taper tantrum usually starts by reducing the purchase of assets, then starting to raise interest rates. The Fed is currently carrying out a quantitative easing policy, buying assets from the real sector directly to the central bank and also lowering interest rates. Going forward If they start to taper tantrums, it's a sign that the Fed is starting to reduce the purchase of assets from the private sector, only in 2023 to think about raising interest rates," said Agus