MACROECONOMIC ANALYSIS SERIES: BI Board of Governor Meeting, October 2020

Uncertainty is escalating, both domestically and globally. While the people seem somewhat unconvinced that the GoI has already and is doing their best effort to solve the health issues, other issues such as protests against the newly passed Omnibus Law on Job Creation and poor implementation of reimposition of large-scale social restrictions (PSBB) in the Jakarta area certainly add fuel to the flames. As a consequence, Rupiah has been in rapid volatility since midSeptember.In addition, with no clear recovery path to be seen over the horizon, aggregate demand will likely to stay muted as people with excess saving will tend to hold their spending and business to maintain their production level at its minimum level. Thus, any monetary easing for now might be futile to spur economic activity and might risk increasing the pressure on Rupiah depreciation and capital outflow. Thus, we view that BI should hold its policy rate at 4.00% this month, while also maintaining its macroprudential policy to manage financial sector stability.

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