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

Various latest development are in the favor of economic recovery narratives. The rollout of vaccines, massive government stimulus, and gradual opening of economic activity contributes to the observed jumpstart of domestic economy. Regardless, the health risk of Covid-19 is still lingering. Reflected by the inflation figure, the relaxation of social restriction measures and Ramadan season has not yet put the aggregate demand expansion in full-throttle. On the external side, despite the inflows exuberance in early May of 2021 which was driven by positive sentiment towards domestic prospect, the episode of capital inflows is rather transient. Various issues, ranging from the potential lockdown implementation in several countries to the possibility of earlier-than-expected tapering off by the Fed following the US domestic improvement and risk of inflation, triggers capital flows  reversal. With a rather volatile external pressure and the need to maintain financial and exchange rate stability, we are in a view of BI needs to hold its policy rate steady at 3.50%.

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