adminAnalysis of the Impact of Rising Global Interest Rates
The increase in global interest rates has a broad impact affecting the economies of various countries, including Indonesia. When a central bank, such as the US Federal Reserve, raises interest rates, this has implications for capital flows and monetary policy in other countries. There are several main impact aspects that must be considered.
1. Movement of Capital
When global interest rates rise, investors tend to seek higher yields. This resulted in a shift of capital from developing countries to countries with higher interest rates, such as the US. Indonesia could experience a strengthening of the USD exchange rate which causes depreciation of the rupiah. This depreciation will have an impact on inflation, especially in the imported goods sector.
2. Borrowing Costs Increase
An increase in interest rates causes borrowing costs to increase. For business people, this means higher interest payments when borrowing. Sectors such as construction and property will feel a significant impact, as project financing depends on loans. Therefore, investment growth could slow down, potentially reducing economic growth.
3. Monetary Policy Adjustment
Bank Indonesia may have to respond by raising the benchmark interest rate to maintain exchange rate stability and control inflation. However, this policy could result in slower domestic economic growth, because high borrowing costs could reduce household consumption and investment.
4. Impact on the Banking Sector
Rising global interest rates can affect bank profit margins. When loan rates increase, banks will try to pass on these costs to debtors. However, if people’s purchasing power decreases, the quality of bank assets could be depressed, increasing the credit risk that the banking industry must face.
5. Implications for the Stock Market
The stock market can experience volatility in reaction to interest rate policies. If investors feel uncertainty increases due to rising interest rates, they tend to sell-off. This has the potential to cause stock indices to fall, affecting market capitalization values and investor psychology.
6. Influence on the Export Sector
Higher interest rates in developed countries encourage the strengthening of their currencies, meaning that export goods from developing countries, such as Indonesia, will become more expensive on the international market. This could suppress the competitiveness of Indonesian products, potentially reducing exports and creating a trade deficit.
7. Social and Development Impact
An increase in interest rates can affect people’s purchasing power, especially for low-income groups. If inflation rises due to higher borrowing costs, inequality could widen further. Disrupted social development due to economic uncertainty has the potential to reduce people’s quality of life.
8. Strategy for Facing Change
Governments and businesses need to formulate strategies to adapt to rising interest rates. Diversifying export markets, increasing production efficiency and product innovation can be important steps to maintain competitiveness. Apart from that, increasing the ability to access capital by utilizing financial technology can help small businesses.
9. Preventive Actions
Preparedness in facing further impacts is crucial. Strengthening macroeconomic stability and optimizing fiscal policy can be important preventive measures. Building foreign exchange reserves and maintaining investor confidence are priorities in facing more complex global dynamics.
10. Multilateral Role and Cooperation
In overcoming the negative impact of rising global interest rates, it is important to strengthen international cooperation. Forums such as the G20 and ASEAN should be a place to share strategies among member countries. Strengthening collaboration in the economic, trade and investment sectors can help developing countries adapt better to the changes that are occurring.
