SUMMARY
Top headline for the month of March remained the strong USD theme. We saw strong US economic growth in contrast to the subdued economic growth trajectories elsewhere. Weaker developed economies such as China, Japan and Euro-Zone were forced to cut interest rates and channel cheap liquidity into the financial systems. On the flipside, Federal Reserve is on its path of hiking interest rate.
Rupiah as well as other currencies weakened in March against US Dollar due mainly to strong US February employment data. USD/IDR climbed to the highest level since financial crisis in 1998. Market turned slightly jittery but finally stabilized after realizing that this was driven by Dollar bullish trend and not a local phenomenon.
Market is anticipating US to go for the first interest rate hike in between June and September meetings, by a cap of 75 bps this year. The steeper the interest rate increases will generally strengthen US Dollar, which will also translate into weaker global currencies. However, the FOMC members failed to reach consensus on the timing for the first interest hike.
Indonesia inflation will have higher correlation to global energy price due to floating domestic fuel price mechanism. While Indonesia was used to fixed domestic fuel price in order to keep the inflation stable, it is currently prone to sudden sharp movement if government adjusts the fuel price. In other words, floating domestic fuel price also implies that Indonesia interest policy will have to adjust accordingly to the advanced economy monetary policy.
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