Market Players Predict The Fed Will Raise Interest Rates This Month

The United States stock market, the S&P 500, closed up +0.69% throughout last week's trading. The Fed will hold a meeting this week to determine the direction of interest rates. According to CME FedWatchTool, almost all market players, 99.8%, predict that the Fed will raise interest rates at this meeting by 0.25%. Even though US core inflation data has shown a decline, JPMorgan sees the Fed still needing some positive inflation results to truly change the direction of its interest rates. 7 of the 11 S&P 500 sectors closed in green, with the highest gains in the Energy and Healthcare sectors, at 3.53% and 3.46% respectively.

BI Estimated to Hold Interest Rates This Month

Bank Indonesia is expected to hold interest rates at 5.75% at the Board of Governors Meeting (RDG) this week, supported by the sloping inflation situation and the relatively stable Rupiah exchange rate. Inflation in June was reported at 3.52%, lower than May's 4%. However, speculation is starting to emerge that there is a possibility that Bank Indonesia will increase interest rates by 0.25% throughout the second half of this year (2H23) to maintain interest rates at parity with the FFR (Fed Funds Rate). The spread between the BI rate and FFR has reached its lowest level of 0.5%, compared to 3.5% in pre-pandemic times. Market estimates that the Fed will raise interest rates at its July meeting also increasingly support the possibility of an increase by Bank Indonesia.

Beef Import Plan

The government announced plans to import beef from South Africa in a bid to reduce its dependence on imports from Australia and ease pressure on retail prices. Currently, Australia is the source of beef imports to Indonesia amounting to 123 thousand tons, followed by India with 85 thousand tons. Meanwhile, domestic beef production has continued to decline since 2019. Beef prices in Indonesia have traded 6.6% above January 2022 levels of IDR130k/kg over the past 15 months. Indonesia also needs to meet 40-45% of its beef supply from abroad by 2023 amid a declining domestic production trend.

Key Takeaways

The United States stock market, the S&P 500, closed up +0.69% throughout last week's trading. According to CME FedWatchTool, almost all market players, 99.8%, predict that the Fed will raise interest rates at this week's meeting by 0.25%. Even though US core inflation data has shown a decline, JPMorgan sees the Fed still needing some positive inflation results to truly change the direction of its interest rates.

For the domestic economy, Bank Indonesia is expected to hold interest rates at 5.75% at the Board of Governors Meeting (RDG) this week, supported by the sloping inflation situation and the relatively stable Rupiah exchange rate. However, speculation is starting to emerge that there is a possibility that Bank Indonesia will increase interest rates by 0.25% throughout the second half of this year (2H23) to maintain interest rates at parity with the FFR (Fed Funds Rate). The spread between the BI rate and FFR has reached its lowest level of 0.5%, compared to 3.5% in pre-pandemic times. Market estimates that the Fed will raise interest rates at its July meeting also increasingly support the possibility of an increase by Bank Indonesia.

In other economic news, the government announced plans to import beef from South Africa in a bid to reduce its dependence on imports from Australia and ease pressure on retail prices. Beef prices in Indonesia have traded 6.6% above January 2022 levels of IDR130k/kg over the past 15 months. Indonesia also needs to meet 40-45% of its beef supply from abroad by 2023 amid a declining domestic production trend.

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