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The monetary policies needed for a challenging year
It is likely that BI will maintain a balanced, mutually reinforcing mix of pro-stability and pro-growth policies this year amid the prevailing global uncertainty.
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Small change: A woman holds up banded bundles of new bills on March 28, 2024 at a rupiah swapping counter at Lembu Peteng Sports Center in Tulungagung, East Java. Muslims traditionally exchange old bills for new ones in small denominations to give to children as Idul Fitri allowances. (Antara/Destyan Sujarwoko)
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n the current uncertainty, central banks around the world are pursuing various contemporary and innovative policies. The main goal is to keep the pulse of the economy beating steadily amid challenging conditions.
Likewise, Bank Indonesia (BI) has endeavored to ensure that the country’s economy grows sustainably throughout the year, not only in quantity but also in quality.
So, what strategies and steps will BI take this year in its monetary policy so the economy continues to thrive? This article tries to summarize what policies will be adopted this year and to take a glimpse at policy progress.
In general, the 2024 monetary policy is not much different from before, but there are improvements. BI will continue a policy mix in which the monetary policy is directed at economic stabilization (pro-stability) while other policies (macroprudential, payment system, money market deepening and financial inclusion) are directed at spurring growth (pro-growth).
Regarding pro-stability, the main problems from last year seem to be continuing today, such as geopolitical fragmentation. This situation will certainly continue to increase global prices for energy and food and disrupt world trade volumes. As a result, the central banks of developed countries must pay a high price to tame inflation, one way of which is to raise the benchmark interest rate. This is no exception in emerging markets, such as Indonesia.
During 2023, BI gradually increased its benchmark rate to control the consumer price index (CPI), as inflation remained high. BI increased its rate last October to 6 percent, which has been maintained until March 2024, to offset the pressure of exchange rate volatility on the rupiah due to global uncertainty and of course, imported inflation.
The government, along with BI, set inflation in line with the specified corridor of 3 percent plus/minus 1 percent in 2023 and 2.5 percent plus/minus 1 percent in 2024 and 2025.
