Latest Economic Developments and BI Measures against COVID-19 (9 April 2020) - Bank Sentral Republik Indonesia
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October 30, 2020
Monitoring the latest economic conditions in Indonesia, the impact of COVID-19 in particular, Bank Indonesia Governor, Perry Warjiyo, announced 4 (four) new developments on Thursday (9/4) along with the policy measures instituted by Bank Indonesia as follows:
1.    Rupiah exchange rate stable and tend to appreciate to Rp15,000 at the end of the year.
This morning (9/4), the value of Rupiah opened at Rp16,200 per US dollar and during this media briefing this afternoon, it was transacted at Rp15,930 per US dollar. The stronger rupiah follows the dynamic market mechanism, inextricability linked to the roles of market actors and exporters who also maintain exchange rate stability. Such stronger rupiah reduces the requirement for Bank Indonesia to stabilize exchange rate.  The stronger rupiah is affected by the following factors:
a.      Rupiah exchange rate remains fundamentally undervalued, and therefore, it tends to appreciate.
b.      The market puts confidence in policy measures instituted by the Government, Bank Indonesia, Indonesian Financial Services Authority (OJK), and Deposit Insurance Corporation (LPS) in COVID-19 handling and its fiscal, monetary, and credit impacts.
c.      Global risk condition is gradually improving despite its relatively high level. One of the indicators is the improving[1] volatility index (VIX). VIX stood at 18.8 prior to COVID-19 pandemic. When the global financial market felt a surge of panic in the second and third weeks of March 2020, VIX stood at 82 as its highest level.  However, with policy measures and fiscal stimulus taken by different countries, VIX is gradually decreasing. In addition, the market also observes that the number of COVID-19 cases is gradually decreasing through the measures taken by different countries, including Indonesia, to lower the spread of COVID-19 pandemic. Large-Scale Social Distancing (PSBB) to be implemented in DKI Jakarta from 10 April 2020 is predicted to curb the spread of COVID-19 pandemic.
2.    Official Reserve assets predicted to increase.
Official reserve assets are predicted to increase to around USD125 billion from USD121 billion by the end of March 2020. It results from issuance of global bonds worth USD4.3 billion by the Government. Official reserve assets are more than adequate for import financing, repayment of the government’s offshore debts, and implementation of exchange rate stabilization measures.
3.    Repurchase agreement line (repo line) cooperation with the US Federal Reserve worth USD60 billion ready for use if required.
It means that the repo line agreement is administratively and technically ready for use if required to add US dollar liquidity though it will not add reserve assets. It indicates the Federal Reserve’s confidence in Indonesia for management of Indonesia’s economy and economic outlook in the future.
 
4.    Prices in the market controlled and low.
The Price Monitoring Survey conducted by Bank Indonesia and 46 Bank Indonesia Representative Offices shows that prices in the market are controlled and low. Price monitoring in the second week of April 2020 indicates inflation will stand at around 0.20% (mtm) or 2.80% (yoy). It is affected by the following sectors:
a.    Coordination between the central and regional governments through Inflation Control Team/Regional Inflation Control Team (TPI/TPID) to ensure fulfillment of basic needs.
b.    Economic growth level of Indonesia will be lower than the national production capacity, resulting in negative output gap and inflationary pressure as demand is controlled.
c.    Marginal impacts of Rupiah exchange rate on inflation.
d.    Expected inflation is well anchored from both consumer and producer sides.
Bank Indonesia will continue to strengthen coordination with the Government and Indonesian Financial Services Authority (OJK) to carefully monitor the dynamics of COVID-19 transmission and the economic impact on Indonesia over time, including the coordinated policy measures required to maintain macroeconomic and financial system stability, as well as solid and resilient economic growth.


[1] Volatility Index/VIX is an index to measure financial market volatility.
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