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

The performance of Indonesia’s macoeconomic indicators is currently showing an improvement, as recorded by higher CCI, trade balance, and decrease in daily Covid-19 cases. The improvement is fueled by better expectations of economic activity after the first rollout of Covid-19 vaccines. However, the positive sentiment from domestic side is vanished since the late of February due to the high pressure from external condition. The rout in the U.S. market following the higherthan-expected inflation figure which is reflecting the optimistic prospect of economic recovery has
hit all emerging  economies’ markets, including Indonesia.  Rupiah has been depreciated by 3.70% (ytd) in mid-March.  The depreciation was driven by the massive capital outflow due to the narrowed yield differential between U.S. and  emerging market’s assests. In this uncertain time, we see that BI should be more vigilant against any increases in external risks. Despite the continuation of low inflation that is signaling muted aggregate demand, BI  hould prioritize the stability of Rupiah this month. Any expansionary monetary policy will be too costly for BI right now as the performance of economic condition is also far from recover. Thus, we see that BI needs to hold its policy rate at 3.50% this month as the preemptive measure to stabilize Rupiah.

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