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Jakarta Post

BI to maintain accommodative policy as GDP set for first annual contraction since 1998

  • Adrian Wail Akhlas

    The Jakarta Post

Jakarta   /   Wed, September 23, 2020   /   05:14 pm
BI to maintain accommodative policy as GDP set for first annual contraction since 1998 Bank Indonesia (BI) deputy governor Dody Budi Waluyo. (Antara/Puspa Perwitasari)

Bank Indonesia (BI) will maintain its accommodative monetary policy to help the economy recover from a projected annual economic contraction this year, the country’s first such contraction since the 1998 Asian financial crisis, a central banker said on Wednesday.

BI deputy governor Dody Budi Waluyo said the country’s economic recovery had been limited to certain sectors as uncertainty surrounding the pandemic remained high. He added that the country should work hard to accelerate the recovery.

Read also: Indonesia’s annual GDP set to contract for first time since 1998

“BI will continue to maintain economic stability and support economic growth amid the challenging conditions. Our monetary policy will be directed toward an accommodative stance,” he said at an online discussion held by the West Java Economic Society on Wednesday.

Indonesia’s economy is set for its first annual contraction since the 1998 Asian financial crisis as the pandemic continues to hamper domestic consumption, business investment and trade.

Finance Minister Sri Mulyani Indrawati said on Tuesday that the government had revised its gross domestic product (GDP) outlook down to an annual contraction of between 0.6 percent and 1.7 percent. Previously, it expected the economy to grow 0.2 percent at best or contract by 1.1 percent at worst this year.

“The central bank will guarantee that there is ample liquidity in the banking system to support the national economic recovery,” Dody said, adding that loan growth had slowed down as a result of weak demand for credit and the reluctance of banks to take risks.

“The good news is that there are four Chinese companies that will relocate to West Java,” he said, adding that the investments would amount to US$600 million. He did not provide details of the deals.

Read also: BI holds rate at 4% to ensure rupiah stability as central bank's independence put in spotlight

BI, in four adjustments, has trimmed its policy rate a total of 1 percentage point this year. It has also cut the reserve requirement ratio, eased lending rules and purchased sovereign debt papers directly at auction to prop up the economy during the pandemic.

The government has allocated Rp 695.2 trillion (US$46.81 billion) for a COVID-19 stimulus package to strengthen the nation’s healthcare system and rescue businesses. It has been struggling to disburse the funds efficiently.

The country announced 4,465 new infections on Wednesday, another record high, bringing the total recorded cases to more than 257,300.