The Effects of the US Interest Rates Rise for Indonesia Economic in Short Run

For the first time in last ten years, the Fed raises the interest rate to a range of 0.25% to 0.5%. Though many people had predicted this, some people, including me, had different projection because it was uncommon for the Fed to raise interest rate in December 2015. The US interest rates rise has vast impact for the US and global economic. This essay aims to discuss the effects of interest rate rise for Indonesian economic in short run.

The US interest rates rise strengthen the US dollar against other currencies, Rupiah is one of them. Since the beginning of December 2015, the exchange rate Rupiah to US dollar exceeded Rp.14.000 level per 1 USD. It will cause pain for Indonesian companies that have raised debt in dollars. If they earn much in a local currency, then the servicing debt in dollars will become more expensive as the dollar rises.

Moreover, Indonesia as the country which highly depends on import will face the inflation problems. The prices of imported goods will definitely increase significantly while the purchasing power of most Indonesian people decreases gradually. For instance, the fuel price may increase in a few weeks ahead. The effects of it will automatically increase the goods and services prices. The companies may not choose to raise the employees salary in order to maintain production costs. It will eventually lower the purchasing power of Indonesian people gradually.

Those are two effects of the US interest rates rise for Indonesia economic in short run. First, it will strengthen the US dollar against Rupiah. It will cause pain for Indonesian companies which have raised debt in dollars and earned much in Rupiah. Second, Indonesia will face the inflation problems. The imported goods prices will increase significantly, yet the purchasing power of Indonesian people will go downward continuously. To achieve economic growth goal in 2016, the Indonesian people and government have to work hard.