Bank Indonesia (BI) gave a signal regarding new policy in responding to global economic developments. They will adjust policies amid global uncertainty that also affects Indonesia.
This was conveyed by the Governor of BI, Perry Warjiyo in a press release published Monday (4/7/2022). A series of global uncertainties are marked by the risk of stagflation in line with the increase in global policy interest rates amid a recovering economy, as well as the increasing extent of protectionist policies by various countries.
“Going forward, Bank Indonesia will continue to monitor global and domestic economic and financial developments, formulate and implement the necessary measures to ensure macroeconomic stability and financial stability, including further adjustments to the policy stance if necessary, and continue to strengthen synergies with the Government to accelerate national economic recovery,” he explained.
The BI governor’s statement indicated that they would consider raising interest rates to maintain rupiah stability, as well as rising inflation.
In June, inflation recorded a growth of 4.35% year-on-year (YoY), the highest in the last 5 years. However, the rise in core inflation was not as high as headline inflation, at 2.63% (YoY).
This could be an indication of weak people’s purchasing power, and the consumer confidence index (IKK) data to be released this week has attracted the attention of market players.
Last month BI released the results of the Consumer Survey. As a result, the Consumer Confidence Index (IKK) in May 2022, which coincided with the fall of Eid al-Fitr, was at 128.9. It rose sharply compared to the previous month which amounted to 113.1 and became a record high.
The IKK uses the number 100 as the threshold. If it is below 100, it means that consumers are pessimistic about the current economic outlook for the next six months.
With inflation rising last month, it will certainly have an impact on consumer confidence. If it shows a decline it will be less good news.
This is because the higher the CPI, consumers tend to spend which has an impact on economic growth. Vice versa.
Household spending is the largest contributor to gross domestic product (GDP) by expenditure, with a share reaching 53.65% in the first quarter of 2022.
When consumers reduce their spending, it will have an impact on economic growth. Moreover, the implementation of Community Activity Restrictions (PPKM) in Jabodetabek was again raised to level 2, which of course could further limit community activities.
Furthermore, the exchange rate of the rupiah against the dollar is still volatile. The Indonesian currency is still under pressure.
The pressure experienced by the rupiah recently has also attracted the attention of Bank Indonesia (BI). Bank Indonesia (BI) Deputy Governor Dody Budi Waluyo said the weakening of the rupiah was in line with other developing country currencies.
“The weakening of the exchange rate is in line with the currencies of other developing countries, even year to date is relatively better (-4.7% YTD as of July 4, 2022),” said Dody, to CNBC Indonesia.