Economist: There Will Be A Slowdown In The Business Sector If The Fed Raises Reference Interest Rates

Illustration. (Photo: Doc. Antara)

JAKARTA - Executive Director of The Institute for Development of Economics and Finance (Indef) Tauhid Ahmad predicts there will be a slowdown in the business sector if the US Central Bank or the Federal Reserve (The Fed) decides to raise the benchmark interest rate for the umpteenth time.

"If the impact is directly from the increase in the Fed interest rate, Indonesia usually increases the BI interest rate, now BI interest rates will usually have an impact on loan interest rates. This will certainly have an impact on the community, so that lending rates, loan interest rates will be more expensive, and that will slow down the business sector for expansion because loans are getting more expensive," said Tauhid, in Jakarta, quoted from Antara, Wednesday, May 3.

In line with Tauhid, Indonesian Center of Reform on Economics (CORE) economist Yusuf Rendy Manilet also projects the impact of Indonesia's economic slowdown if the Fed raises its benchmark interest rate.

According to him, the Fed's rising interest rate has the potential to influence Bank Indonesia (BI) to participate in raising its benchmark interest rate.

"There is a potential for BI to also increase the benchmark interest rate. But once again, this assumes that the weakening of the rupiah exchange rate will weaken drastically but if not, BI will continue to hold back its current benchmark interest rate, of course also by paying attention to the trend of domestic inflation," said Yusuf.

Previously, the Fed on Wednesday was expected to announce an increase in interest rates at level 25 basis points (bps). This makes investors anxious about the policy discourse.

The fiscal policy is one of the options to answer the US, which is threatened with default.

The US previously reached a debt limit of 31.4 trillion US dollars or equivalent to Rp462,113 trillion in January. The US Treasury Department has used cash and "extraordinary actions" to fulfill its obligations since then.