By: Eko B Supriyanto, Chief Editor of Infobank Media Group
DONALD Trump is back as President of the United States (US). It is almost certain that the global market will be full of dynamics. The effect will also affect the whole world, because the US is a large country with a large world trade. Indonesia will also be affected by changes in US policy. In fact, the potential for financial market uncertainty will occur after Donald Trump is elected as US President.
What will be the impact on financial markets in Indonesia?
According to Infobank Institute’s records, in the 2016-2020 period, when Trump became president, the most remembered policy in the world was protectionism policy, especially China-US trade relations. Also, the potential for corporate tax reduction. In short, US economic expansion policies.
So, according to Infobank Institute, protectionism policies will still be carried out with a higher tariff mechanism, especially goods from China. While Indonesia-China trade relations remain high, Indonesia’s trade with China will also be affected, as the supply chain of goods to China-Indonesia is relatively large.
It is predicted that Trump’s victory, which was previously predicted by the market, due to which a lot of dollar flows into the US will lead to a strengthening of the US dollar. Trump’s expansionary fiscal policy will bring dollars home and will strengthen the currency, including the rupiah.
Well, if so, then the potential for a Fed Fund Rate (FFR) cut is also getting smaller, due to Trump’s fiscal expansion. Clearly, this will affect Bank Indonesia’s (BI) room for maneuver to continue lowering the BI-Rate. This is certainly an important calculation for BI to lower interest rates, because BI’s biggest fear is the decline in the value of the rupiah due to the increasing “return home” dollar.
More serious is of course the impact of the US bond hike as it is driven by fiscal policy uncertainty. This will affect global fund flows, which will increase the cost of borrowing for floating countries, including Indonesia.
Just look at it, the increase in US treasury yilts has encouraged capital flight out, and had an impact on the decline in Indonesian stock prices and of course has the potential to increase the yield of sovereign bonds. These days the US treasury hike will encourage capital flight out. The prospect of Government Securities (SBN) with rising yields will also bring the country’s pockets deeper.
So, Donald Trump’s victory over Kamala Harris makes the market in Indonesia in the medium to short term “nervous”. The capital market will work harder to attract foreign fund flows, and of course, it has the potential to be weak and mediocre. It is full of uncertainty and the opportunity to lower interest rates is hindered by Trump’s policy of protectionism and blind expansion.
Prabowo’s government will also encounter a difficult road, due to the increase in yields on sovereign debt securities. That means the debt interest for the state budget is also getting bigger.
And, banks will also live with high interest rates. Banks will maintain credit quality so as not to default due to protectionist policies and increased risk due to rising interest rates.
Tight policies will be implemented by BI. This will have an impact on drying up liquidity in the market again. Because, as usual, BI will blindly maintain the rupiah exchange rate due to the dollar returning home to welcome Donald Trump’s victory as US President. (*)
