Stabilitas Sistem Perbankan dan Kebijakan Moneter: Keterkaitan dan Perkembangannya di Indonesia

Perry Warjiyo ()
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Perry Warjiyo: Bank Indonesia

Bulletin of Monetary Economics and Banking, 2006, vol. 8, issue 4, 429-454

Abstract: This paper redownloads the inter-linkage between banking stability and monetary policy, with a reference to the Indonesian case since the 1997 crisis. In particular, it shows how monetary transmission mechanism would be inhibited and thus monetary policy would not be effective when the banking system is not sound and stable, such as during a crisis period. Conversely, the stance and response of monetary policy would have significant impacts on banking stability as inflation, exchange rate, and interest rate constitute major market risks to banking operations. For Indonesia, a close inter-linkage between banking instability and monetary policy ineffectiveness has been vividly evidenced during the crisis period of 1997-1999. Subsequently, however, with progress of the banking restructuring programs that Indonesian authorities have undertaken, the banking conditions have improved considerably since 2000. As banking intermediation improved, not only has financing to economic growth increased but also monetary transmission mechanisms strengthened considerably. Nonetheless, excess liquidity that banking system is still experiencing, especially because of lack of feasible investment outlets in the real sector and high perceived credit risks from the bankers, poses serious challenges to the central bank for better coordination and striking the optimal balance between maintaining monetary and banking stability while continue to promoting economic growth.

Keywords: Banking Stability; Monetary Policy; Indonesia (search for similar items in EconPapers)
JEL-codes: E52 G21 N25 (search for similar items in EconPapers)
Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:idn:journl:v:8:y:2006:i:4a:p:429-454

DOI: 10.21098/bemp.v8i4.144

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