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View all search results50 bps for financial stability
This country is finding itself at a point where policymakers at the central bank and the government need to choose between faster growth or stability, we cannot have it all.
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The Bank Indonesia logo adorns the gate of the central bank's headquarters in Jakarta in this undated photograph. (Antara/File)
M
any analysts were surprised by Bank Indonesia’s (BI) decision to hike the benchmark interest rate on Wednesday, but given the recent slide in the rupiah, the move was logical.
It was clear in advance that reassuring words about “stability” from the BI governor would not cut it. Not this time.
The central bank’s task is to maintain financial stability; it does not matter whether the factors unsettling markets lie within or outside of the country.
Global developments are indeed weighing on the rupiah, as on other emerging market currencies, but waiting for the Middle East situation to resolve itself was not an option, given that what began with United States-Israeli strikes on Iran has turned into an open-ended crisis.
Action was needed when the currency not only broke its all-time low last month but showed no sign of halting there after it had gone through the psychological marker of Rp 17,000 per US dollar like a hot knife through butter.
This country is finding itself at a point where policymakers at the central bank and the government need to choose between faster growth or stability, we cannot have it all.
BI sent a strong signal for stability with a 50-basis-point increase in the BI Rate rather than a more typical 25-bps change, because big pressure calls for a big response. Kudos to BI Governor Perry Warjiyo for living up to the central bank’s key mandate.
