BI Board of Governor's Meeting, May 2018

Febrio Kacaribu (), Alvin Ulido Lumbanraja (), Denny Irawan () and Syahda Sabrina ()
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Febrio Kacaribu: Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)
Alvin Ulido Lumbanraja: Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)
Denny Irawan: Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)
Syahda Sabrina: Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)

No 201805, LPEM FEBUI BI Board of Governor Meeting Brief from LPEM, Faculty of Economics and Business, University of Indonesia

Abstract: Strong US economic growth and deteriorating trade balance position in April triggered selloff in Rupiah-­-based assets and depreciation of USD/IDR of around 1.80% in the last month alone. Negative sentiments surrounding USD/IDR exchange rate created pressure for Bank Indonesia to increase its 7-­-days Reverse Repo Rate, particularly from banks and participants in FX market. At current prices, we see that Rupiah-­-based assets are now undervalued and that global investors will start to buy again once market turmoil has receded. On the other hand, domestic economic indicators, particularly core inflation and domestic consumption, still shows that Indonesian economy is still not ready for increase in benchmark interest rate. Decision to increase 7-­-days RRR may slow down credit growth and, ultimately, inflation and growth. Our view is that Bank Indonesia should leave the 7-­-days RRR unchanged until June 2018, after the second Fed rate hike. We also see the need for BI to increase its exchange rate stabilization effort through direct intervention in FX market

Keywords: gdp; —; economic; —; economic; outlook; —; inflation; —; macroeconomics; —; interest; rate (search for similar items in EconPapers)
Date: 2018-05, Revised 2018-05
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