Finance Minister Sri Mulyani Indrawati is wary of skyrocketing inflation in the United States (US). This is an important factor that determines the direction of monetary policy from the Federal Reserve (The Fed) in the future, which the impact will be experienced by developing countries such as Indonesia.
“The increase in interest rates in the US causes complications in developing countries, outflows that cause the weakening of the rupiah exchange rate and have an impact on the domestic economy,” Sri Mulyani said at CNBC Indonesia’s Squawk Box event, Thursday (11/25/2021).
The US Commerce Department has reported that inflation in terms of personal consumption expenditure (PCE) rose 5% year-on-year (YoY) in October. This is the highest since November 1990.
While PCE core inflation which excludes energy and food items in the calculation grew 4.1% YoY, higher than September’s 3.6% YoY, and in line with Reuters predictions. Inflation which is the reference for the Fed in setting monetary policy is at its highest level since January 1991.
The possibility of the Fed raising interest rates faster is also seen from the release of the minutes of this month’s monetary policy meeting. The minutes show board members are ready to raise interest rates early if inflation continues to rise.
Indonesia, said Sri Mulyani, was fortunate enough as the economy improved due to the surge in international commodity prices. Seen from the position of the trade balance and balance of payments surplus.
“Current account surplus 1.5%, this is much better than taper tantrums,” he said.
In addition, foreign ownership in state securities (SBN) is also getting smaller, creating better economic resilience. The APBN deficit is also getting smaller in line with the economic recovery that boosts state revenues.
Even so, the government together with Bank Indonesia (BI) said they would continue to monitor so they could read all the possibilities that could happen.
“We and BI will coordinate to oversee the economy in the face of global dynamics that we cannot control, policies in the US, Europe, and cause large spill overs,” he concluded.