MACROECONOMIC ANALYSIS SERIES: BI Board of Governor Meeting, January 2021

Serving as the main theme of 2020, ultra-weak aggregate demand and purchasing power of the population is a rather global phenomenon, as the pandemic of Covid-19 wreaked havoc almost all the countries in the world. However, while some countries are doing relatively well in getting their focus in order and are trying to solve the health issue in a pertinent manner, Indonesia seems to struggle to manage the situation. Marching towards the end of 2020, any substantial signs of recovery has not been emerged over the horizon. Regardless, the occurrence of a recent series of events has materialized in Indonesia’s economic condition. By breaking down the component of Indonesia’s Balance of Payment (BoP), from the financial account perspective, the results of the US election and vaccines rollout in mid-November triggered a positive sentiment by investors; thus showering emerging markets with liquidity and caused EM currency to appreciate rapidly against USD. From the current account perspective, Indonesia’s foreign trade is also showing a rather favorable sign. On the other hand, a bleak development of public health condition continues its occurrence. A higher-than-ever daily recorded cases of Covid-19 left the government with no choice but to reimpose social restriction measure, as a repercussion of the overcapacity of public health facilities. Moving forward, the escalation of financial sector as well as the real sector remains unclear as it is highly dependent on the ongoing pandemic situation. With many things still on the uncertain status, we are on the view that BI should hold its policy rate at 3.75% this month, while also maintaining its macroprudential policy to manage financial sector stability.

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