Indonesia to end its Stimulus Policy Due to US Unpredictability

Olivier and Mann - Indonesia to end its Stimulus Policy Due to U.S. Unpredictability

Olivier and Mann – Bank Indonesia has indicated that it may end interest rate reductions as the bank decides to take a more restrained approach following the U.S. Fed’s tightening and President Trump’s trade program revamp.

Indonesia’s central bank reduced its standard rates six times last year by a total of 150 basis points in its effort to encourage lending and revitalise financial growth. The bank did not change its rates in January because it believed that the economy needed further amelioration.

The country’s deliberate easing in 2016 has earned Indonesia the distinction of being the country with the most rates cut in Asia, but that is about to end, as the bank’s top officials have become more tentative due to the increasing fears over global financial growth.

The current U.S. administration’s decision to leave the Trans-Pacific Partnership has supported fears that the U.S. will implement a nationalist economic position on trade and Indonesia, due to the developments that have unfolded, now amended its stance to one more wary of easing.

The bank’s 4.75% seven-day collateralized loan rate is still in effect from January and experts are anticipating that the bank will maintain the rate for 2017 and 2018.

Indonesia should experience better financial growth in 2017 and its monetary stability will be controllable even if the economy encounters international and domestic risks. According to the World Bank, Indonesia’s economy has been growing by around 5% yearly and may grow by 5.3% this year.

Indonesia sees balancing its trade relationship with China as a possible problem and burden. Other outside issues that need to be monitored are the unstable worldwide economic rebound, the global economy that is being influenced by U.S. economic programs and the Federal Reserve’s motions to increase funds rate and pressure investments and currency exchange.