The Jakarta Post
Bank Indonesia has hinted that it will maintain its tight money policy this year amid the normalization of monetary policies by central banks in other countries.
“The interest rate has nearly reached the peak, but liquidity is still low. Is it hawkish or not? The interest rate is [hawkish],” BI Governor Perry Warjiyo said in Jakarta on Monday as quoted by kontan.co.id.
He said BI's policy rate would anticipate external factors, stabilize the rupiah's exchange rate and control the country’s current account deficit.
Previously, BI recorded a US$31.1 billion current account deficit in 2018 or 2.98 percent of gross domestic product (GDP), which significantly increased from $17.29 billion or 1.7 percent of GDP. The deficit saw a jump in the fourth quarter of 2018 at $9.1 billion (3.57 percent of GDP).
Perry said BI and the government had to cooperate to narrow the current account deficit to 2.5 percent of GDP as targeted this year. “If we see the current account deficit, we need a joint effort to narrow the deficit. We strictly maintain our ‘nearly reaching the peak’ policy,” he explained.
While maintaining its hawkish policy, BI will loosen liquidity, he said, adding that the banking sector had got injection through swaps and term purchase agreements, which was needed to encourage economic growth through credit disbursements.
Perry said central banks of neighboring countries like India, Thailand and the Philippines had started to normalize monetary policy because they believed that the Federal Reserve’s policy would not be as tight as last year’s.
Bank Indonesia sees that the economy will be strong this year, indicated by inflation of 3.13 percent and economic growth of 5.17 percent, Perry said, adding that the current account deficit needed serious attention. (bbn)