Indonesia’s rate hikes shouldn’t ‘kill’ recovery, Finance Minister Indrawati says

Published Mon, Sep 12, 2022 · 07:09 PM

INDONESIA’S Finance Minister Sri Mulyani Indrawati has warned against excessive monetary policy tightening that could derail economic recovery, as the government also does its share to ease supply disruptions and cool inflation.

President Joko Widodo is coordinating with local government leaders and policymakers to identify the source of price pressures in the food supply or energy costs, she told a Bloomberg Live forum in Singapore moderated by Haslinda Amin.

“That is really up to the central bank. That’s why they’ll decide if this current inflation is going to affect the expectation of inflation on a more permanent basis, then it is time for the central bank to act,” she said of the rate hikes. Dr Sri Mulyani isn’t part of Bank Indonesia’s monetary policy setting.

Still, she said, the excessive use of an instrument like the benchmark rate “can kill the whole recovery of the economy” and that it’s best to use it “without overkilling or creating unintended consequences”. The central bank has other tools including banks’ reserve ratio and macroprudential measures to stabilise prices, she said.

The next policy rate meeting is set for Sep 22, with analysts expecting at least another 25-basis point hike after last month’s surprise rate increase. 

The government had forecast that inflation hovering near a 7-year high may quicken further to 6.8 per cent this year after prices of widely used fuels were raised 30 per cent this month.

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That price increase should so far be “adequate” to stabilise the state budget, with international crude prices easing to about US$90 a barrel today from an average of over US$100 from January to August, Dr Sri Mulyani said.

It should also keep the budget gap at 2.85 per cent of gross domestic product next year, as earlier forecast, the finance chief said. Indonesia is on track to reinstate its fiscal deficit ceiling of 3 per cent of GDP by 2023, making for a “fast and very credible budget consolidation in only 3 years” since the pandemic, she said. BLOOMBERG

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