Trump Fires Fed Governor Lisa Cook, Will Impact On Rupiah And SBN

Lisa Cook. (Photo: Special)

JAKARTA - Head of Bank Permata economist Josua Pardede conveyed the US President Donald Trump's decision to fire a member of the Fed's Board of Governors, Lisa Cook, regarding the alleged mortgage fraud has had a significant impact on the global and domestic financial markets, including Indonesia.

He explained that the weakening of the US dollar globally generally supports the strengthening of the developing country's currencies, including the rupiah.

However, continued Josua, there are detail-risks in the form of legal chaos and politicization of US central banks, which can increase volatility in risky assets.

Thus, he said that although the weakening of the dollar gave an initial positive sentiment to the rupiah, this could be restrained by the widening of the bid-ask spread amid increasing risk due to negative news.

"This means that weaker US dollar support can be restrained by bid-asks that widen as the headline-risk emerges. The weakening initial reaction of the dollar shows positive winds for the rupiah, but does not erase the potential for risk-offs if the legal conflict heats up," he told VOI, Tuesday, August 26.

In addition, Josua said, the European phenomenon in the curvature of US government bond yields has the potential to spread to emerging markets.

According to him, long-tensor bonds such as 10 years to 30 years are more sensitive to the increase in long-term and institutional risk premiums, while short to medium tenors benefit from expectations of easing the Fed's policy.

"The implication is that the SBN curve has the potential to close yields of 2-5 years relatively restrained/down slightly, while 10-20 years are more prone to up/off, especially if the Fed's authority drag drags on," he said.

Furthermore, he said that Bank Indonesia (BI) is estimated to remain focused on stabilizing the rupiah exchange rate and managing the term-premium in the SBN market by using pro-market policy instruments to reduce volatility originating from the global market.

He explained, if the weakening of the US dollar occurs without an escalation of risk, the space for BI to maintain liquidity and continue the measurable easing mix is still open, but on the contrary, if global volatility increases, BI will likely again prioritize stability through intervention in the foreign exchange market (FX smoothing) and portfolio flow management, at least until external pressure eases.

Josua said this development had a real impact on market confidence, but it was two-sided, namely on the one hand, weakening the US dollar and expectations of easing monetary policy in favor of assets in developing countries.

Di sisi lain, ia menyampaikan akan ada kekhawatiran terhadap menurunnya independensi The Fed menambah premi risiko institusional, khususnya untuk aset berjangka panjang.

"Untuk Indonesia, implikasi langsungnya adalah rupiah cenderung ditopang oleh dolar AS yang lebih lemah, sementara kurva SBN berpeluang men-steepen dengan volatilitas yang lebih tinggi," pungkasnya.

On the other hand, he said there would be concerns over the declining independence of the Fed adding to the premium of institutional risks, especially for long-term assets.

"For Indonesia, the direct implication is that the rupiah tends to be supported by weaker US dollars, while the SBN curve has the opportunity to close with higher volatility," he concluded.