Indonesia central bank calls for policy coordination amid persistent global risks

JAKARTA (Reuters) – Indonesia’s central bank governor Perry Warjiyo on Wednesday called for better coordination between domestic fiscal and monetary policy, amid persistent global risks and weakening global economic prospects.

Speaking at an annual gathering of financial executives and government officials hosted by the central bank, Warjiyo said Indonesia needs to be cautious as global growth will weaken in 2024 before improving the following year.

“Geopolitics is affecting geo-economy. As a result, global economic prospects will weaken in 2024 before improving in 2025,” he said, adding that global growth was expected at 2.8% in 2024 and 3% in 2025.

“Close fiscal-monetary synergy…needs to be strengthened for (Indonesia’s) economic resilience and revival” he said.

Growth in Southeast Asia’s largest economy is expected to slow this year with exports shrinking amid falling commodity prices and weakening demand, though spending for elections in February may boost domestic demand.

Warjiyo put Indonesia’s GDP growth outlook within a range of 4.7%-5.5% for 2024 and 4.8%-5.6% for 2025, and between 5.3% and 6.1% in the medium term, by 2028.

Indonesian President Joko Widodo said at the same event the country must prepare to deal with the impacts of wars in Ukraine and Gaza, which could affect global supply chains and energy prices.

“Our economic growth at 5% is still better than our peers and our inflation is also under control, but we need to stay vigilant,” said Jokowi, as the president is known.

BI’s monetary tightening cycle, including its 250 basis points interest rate hikes from August 2022 to October 2023, is also expected to hurt growth.

Its latest rate hike in October was in response to the rupiah’s depreciation, with the currency facing pressures amid the U.S. monetary tightening.

The rupiah strengthened on Wednesday ahead of the gathering.

Warjiyo also said rupiah stabilisation measures would be strengthened next year to mitigate against imported inflation.

On top of that, BI’s macroprudential policy in 2024 will be maintained to support economic growth. The monetary authority will reduce the liquidity buffer ratio for banks starting December 2023.

The move will provide liqudity flexibility by around 81 trillion rupiah ($5.26 billion) to support loan growth in 2024.

The bank has set 2024’s inflation target at a range of 1.5% to 3.5%, compared with this year’s range of 2% to 4%. The headline inflation rate was at 2.56% in October.

($1 = 15,390.0000 rupiah)

(Reporting by Stefanno Sulaiman and Ananda Teresia; Writing by Kanupriya Kapoor, Editing by William Maclean)