Bank Indonesia governor governor Perry Warjiyo. — The Jakarta Post
JAKARTA: Bank Indonesia (BI) governor Perry Warjiyo has signalled that the central bank will have less room for continued monetary policy easing next year as pressure mounts on the rupiah as a result of the more inward-looking policy expected from the administration of United States president-elect Donald Trump.
“Global turmoil has pushed us to focus on rupiah stabilisation,” Perry said in his keynote speech at the BI annual meeting in Jakarta last Friday, adding that BI’s policy rate would be adjusted in accordance with “global and domestic economic dynamics”.
He added that BI was continuing to look for room to cut its benchmark rates as inflation was expected to remain steady in the next two years and as lower interest rates were needed to drive economic growth.
Aside from changes to the BI rate, the central bank’s toolbox to protect the rupiah includes foreign exchange market intervention and so-called macroprudential incentives, which are offered by BI to banks extending loans to priority sectors and small businesses in the form of lower reserve requirements.
Perry said Trump’s return to office would “bring big changes to the world’s geopolitical and economic landscape” that would dim the world’s economy in the next two years, and he indicated how it pressed the central bank to act accordingly.
Speaking at the same event, President Prabowo Subianto said geopolitics was “in a rather sensitive situation full of uncertainty, necessitating us to remain alert, always careful.
“But I am grateful that the overall situation in remains calm and conducive”.
Perry said import tariffs, trade wars, geopolitical tensions, supply chain disruptions and economic and financial fragmentation were adding to global uncertainty and would play out in various ways.
He said a slower and diverging economic growth, where the US would see better days while China and Europe would experience weakness.
Supply chain disruption and trade wars, Perry said, would see inflation pressure “re-emerge”.
The annual inflation rate in Indonesia dropped to 1.55% in November, according to official data published on Monday, inching close to the low end of BI’s target range of between 1.5% and 3.5%. — The Jakarta Post/ANN
