The Fed raised the interest rates to encounter the USA inflation. USA inflation reached. 8.3%. Moreover, The Fed raised the interest rates by 75 basis points equal to 1.5% – 1.75% in June 2022. Therefore, The Fed’s policy to increase interest rates affects several aspects such as developing countries in Asia and the stock exchange.
The hike of The Fed interest rates decreased the global liquidity, which resulted in slowing down economic recovery in Asia. For example, tighter credit makes loan costs higher and reduces profitability. Moreover, tightening monetary makes investors withdraw their money out of Asia which triggers currency depreciation.
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Commonly, a sharp currency depreciation affects the price of commodities import, as a result, makes many countries struggle to pay foreign debt. In addition, most of the regional economies in Asia adopt macroeconomic policies. The policy includes a flexible exchange rate and fiscal policy.
Not only that, the hike in The Fed’s Interest rates also affects the stock market. At the end of the first session, all stock exchanges in Asia struggled in a ‘red zone’ such as Nikkei 225 fell 0.58%, Hang Seng fell 1.61%, and Shanghai Composite dropped 0.27%.
Furthermore, IHSG (Indeks Harga Saham Gabungan) fluctuates because of The Fed’s interest rates. All sectors of IHSG in the ‘red zone’ lead by the energy sector that dropped 3.82%, the technology sector dropped by 1.93%, and the infrastructure sector fell by 1.13%. However, experts predict that IHSG could rebound because it’s quite strong and stable.
