A Series Of Effects Of The Fed's Interest Rate Hikes That Are Feared By Many Countries

JAKARTA - Governor of Bank Indonesia (BI) Perry Warjiyo issued the latest statement regarding the move by the United States (US) central bank (The Federal Reserve / The Fed) to start raising its benchmark interest rate by 25 basis points this March.

According to Perry, the Fed's stance on raising interest rates has had a multiplier effect on many global countries. This is because the United States of America is the largest economy in the world.

The change in monetary policy in the superpower is certain to have implications for the international economy, especially the financial market sector. Moreover, the US dollar is still the most widely used currency today.

"This (the increase in the Fed fund rate) has an impact on increasing global interest rates and also the perception of risk," he said in a virtual discussion on Monday, March 21.

Perry explained that the greatest pressure must be experienced by developing countries such as Indonesia and not by fellow developed countries at the level of the US.

“The situation will be more difficult for developing countries to recover as they have to cope with the impact of global propagation and uncertainty. An increase in interest rates is unavoidable, which affects capital flows to emerging countries," he said.

In fact, he continued, the new level of the Fed fund rate indirectly provides its own pressure for policy formulation to control and determine the direction of the economy.

"This further limits the country's ability to formulate policies more openly to encourage economic growth in the country," he stressed.

For this reason, Perry took full advantage of the momentum of the G20 Presidency as a lobbying vehicle, considering that Indonesia and the United States belonged to the same association.

"This issue is important and we will convey how policy normalization in developed countries needs to be properly calibrated. Not only that, we will also encourage good planning by improving communication so that the impact globally and also in developing countries can be more mitigated. So that it can be achieved well calibrated, well communicated, and well normalization," concluded BI Governor Perry Warjiyo.