Jeng-Jeng! March Has Arrived, The Fed Is Raising Interest Rates?

JAKARTA - The end of the first quarter of 2022 which falls in March is believed to be the first period of the US central bank, The Federal Reserve (The Fed) to raise its benchmark interest rate after a long period of being in a sloping trend.

At least this is agreed by the government through the Ministry of Finance and the monetary authority of Bank Indonesia (BI).

In a VOI note, the Minister of Finance (Menkeu) Sri Mulyani had said that the Fed's move to raise interest rates was something that was unavoidable. According to the Minister of Finance, one of the triggers is inflation growth which has reached 7.5 percent in February this year.

The state treasurer gave a signal that the Fed's rate hike is believed to occur in March 2022.

"The Fed is expected to raise interest rates five to seven times this year," said the Minister of Finance some time ago.

Similarly, BI Governor Perry Warjiyo said that the adjustment of the US central bank's policy would affect the dynamics of global financial markets. In contrast to Sri Mulyani, Perry said that the Fed would gradually increase interest rates four times.

"Based on our readings, the Fed Funds Rate (FFR) will increase four times this year," he said.

Perry himself predicts the US central bank will raise the Fed Funds Rate by 100 basis points. For information, the normalization of monetary policy in the United States and European countries will strengthen foreign exchange rates, especially from developed countries.

This at the same time has the potential to weaken the rupiah exchange rate and will cause capital outflows. However, BI is optimistic that the current condition will have better resilience compared to the previous similar situation.

"However the impact on the weakening of the rupiah exchange rate, it will be controlled because fundamentally, technically, the rupiah is strong which is supported by BI's strategic steps," said BI Governor Perry Warjiyo.