JAKARTA/BANGKOK: Business has been tough over the past few years for Mr Budiarto Tjandrawagi8, a manufacturer and exporter of Adidas shoes since 1988.

Global demand for purchasing his products has taken a hit in the wake of the COVID-19 pandemic and prolonged conflicts in Ukraine and Gaza. 

As a result, his company, PT Panarub Industry, located in Tangerang on the outskirts of Jakarta, has recently had to let employees go.

He thinks that brighter days might be ahead though and has his hopes pinned on a key economic decision made on the opposite side of the world.

The United States Federal Reserve’s (Fed) decision to cut interest rates by 50 basis points - or half a per cent - on Sep 18 was evidence of the world’s biggest economy easing off from a prolonged and aggressive bid to control inflation.Rates dropped to a target range of 4.75 per cent to 5 per cent, the first reduction in four years. 

The waves made by the decision were quick to land in Southeast Asia. And businesses and consumers alike are preparing for the potential effects. 

“With the decrease of the Fed rate, there will be a global impact,” said Mr Budiarto.

“With the interest rate decreasing, the economy can move better, so our global market will grow, and we will see an increase in demand. That is my hope.” 

The Fed’s decision has generated both headwinds and tailwinds for Southeast Asia’s two biggest economies - Indonesia and Thailand - leaving their respective central banks to delicately manoeuvre in the aftermath.

Historically, official interest rates in both countries have tracked the Fed’s closely, due to economic interdependence, concerns about currency fluctuations and flows of global money.

When the Fed moves, typically large sums of money are shifted by investors from US government bonds to developing markets, such as those in Southeast Asia, causing their respective currencies to strengthen in response.

That has happened in recent weeks, with both the Thai baht and Indonesian rupiah strengthening significantly against the greenback. The impacts can cascade through the economy, impacting industries from manufacturing to tourism.

Differing policy responses this time around highlighted the delicate domestic considerations both countries face.  

Indonesia made a proactive move; just a few hours before the Fed cut its interest rate, the Indonesian central bank, Bank Indonesia (BI), also delivered a rate cutwagi8, its first in over three years.

• and
• Rates
• wagi8
• Currency
• Surging