... That would increase the risk of funds flowing out putting greater pressure on rupiah...Tangerang, Banten (ANTARA News) - An economic analyst said the domestic economic challenges would mount in June-August on high expectation that the Federal Reserve would raise its interest rate and the government gambling in trying to convince the market about success in securing state revenues.
There would be question about revision of state budget and growing expectation of an increase in The Fed fund rate, Leo Rinaldy , from Mandiri Sekuritas, said at a training of economic journalists held by Bank Indonesia here on Saturday.
Currently the market players have high expectation of the government success in increasing state income, Putra said.
The market players also want to see the fiscal posture used by the government, the process of revision of the 2016 state budget to be proposed to the Parliament, he added.
"The market players also are waiting for the Tax Amnesty Bill (which has yet to be decided by the Parliament). If approved it would at least contribute to state revenue and strengthen fiscal capacity," he said.
Leo asked the government to be more realistic in using macro assumptions in revising the 2016 state budget.
He said the country's economic growth of 4.92 percent in the first quarter of 2016 was not too bad, adding it was still better than a year earlier.
However, there was market turbulence at that time on too high expectation given by the government for economic growth, he said.
"It is important for the government to be more cautious in giving expectation in the financial market as it would determine market sentiment," he said.
He repeated reminding that the market players have high expectation that the US central bank would raise its fund rate in June 2016.
"That would increase the risk of funds flowing out putting greater pressure on rupiah," he said.
Instability is also feared to hit the government bond market as foreign investors hold 37 percent of the government bonds.
With that level of foreign share in the bond market, an increase in the Fed fund rate would trigger reversal of capital flow to the world's largest economy.
"In the stock market foreign investors hold almost 60 percent of traded shares. This is important for Bank Indonesia to pay attention. Investors also would watch whether Bank Indonesia could keep rupiah stable. June to August would be most crucial for the market," he said.
Editor: Ade P Marboen
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