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RI must address structural problems: Moody's
Moodyâs Analytics says that Indonesia must address underlying structural problems, particularly its poor infrastructure and over-regulation of foreign investment, to address the recent turmoil affecting its economy
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oody's Analytics says that Indonesia must address underlying structural problems, particularly its poor infrastructure and over-regulation of foreign investment, to address the recent turmoil affecting its economy.
'Bank Indonesia [BI] will likely keep rates unchanged this month. To cushion the rupiah's decline, policymakers are using foreign reserves and opening swap lines with other central banks. These temporary measures will only slow the currency's fall, not stop it,' Moody's said in its official release made available to The Jakarta Post on Thursday.
'The bank should shift focus to growth by gradually unwinding its recent rate hikes,' Moody's added.
Growth has slowed significantly over the last 12 months. The once resilient economy is starting to show cracks, as investment spending weakens and household spending cools.
The latest consumer confidence readings are at a 14-month low, indicating spending will remain soft. Yet the central bank has raised monetary policy rates by 125 basis points over the last three months, trying to anchor inflation expectations and support the falling rupiah.
Inflation has topped the central bank's 5.5 percent target ceiling since the government cut fuel subsidies.
The rupiah meanwhile has fallen significantly as the bulging current account deficit and prospects of tighter policy in the United States sparked a sell off of Indonesian securities.
'Raising rates to support the currency has had little effect, which isn't surprising since the sell off stems from disappointment in the pace of structural reform,' Moody's said.
