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Jakarta Post

Lower policy rate a must to stimulate economy

  • Dendy Indramawan and Afaqa Hudaya

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Jakarta   /   Wed, July 10, 2019   /  11:29 am
Lower policy rate a must to stimulate economy The Bank Indonesia building on Jl. MH Thamrin in Central Jakarta. (Shutterstock.com/Harismoyo )

The United States Federal Reserve shook financial markets and macroeconomic conditions in developing countries, including Indonesia, by increasing the federal funds rate four times in 2018. The depreciation of the rupiah against the US dollar was inevitable because of massive capital outflows. The currency at one point fell to 15,000 against the greenback, the lowest since the aftermath of the 1998 financial crisis. Bank Indonesia (BI), therefore, responded by raising the seven-day reverse repo rate by 175 basis points from 4.25 to 6 percent. The increase of the seven-day reverse repo rate made BI one of the most hawkish central banks in Asia in 2018. The stance was taken to maintain the Indonesian market’s attractiveness to portfolio capital in a bid to increase foreign reserves and strengthen the rupiah. Entering 2019, the long running China-US trade war t...



Disclaimer: The opinions expressed in this article are those of the author and do not reflect the official stance of The Jakarta Post.