World Economy

Indonesia Ready to Trade Growth for Stability

Indonesia’s growth is stuck at about 5 percent,  well below the 7 percent target.
Indonesia’s growth is stuck at about 5 percent,  well below the 7 percent target.

Indonesian Finance Minister Mulyani Indrawati said the government is willing to accept slower economic growth as a trade-off for stability.

“All of us are ready to implement any policies needed to protect Indonesia’s economy,” Indrawati told reporters on Monday in Jakarta. “So, if we have to make adjustments in the short run that will result in slightly lower growth, that’s a consequence that we will take,” Bloomberg reported.

Policymakers have been forced to shift focus to stability amid a rout in the currency even as the economy is still struggling to fire up. Almost all economists predict the central bank will raise interest rates in an early policy meeting on Wednesday, which would be the second increase in two weeks.

Indonesia’s economic growth is stuck at about 5%, well below the 7% targeted by President Joko Widodo. The government would accelerate reforms to support growth and would continue working with Bank Indonesia on a coordinated policy response to the current market turmoil, Indrawati said.

“We won’t hesitate to make well-timed responses to maintain the stability of the financial sector,” she said.

Indonesia’s new central bank governor has set the stage for a second interest rate increase in two weeks, as he wastes little time in acting against a currency rout.

A day after Governor Perry Warjiyo was sworn into office, Bank Indonesia announced the monetary policy board will meet this week, about a month before its next regular monthly scheduled one. The move helped to boost the currency 1% against the dollar on Monday, the best performer in Asia, and pare back its decline for the year to 3%.

Warjiyo has pledged to act early and be ahead of the curve when it comes to policy, a stance he reiterated on Monday. He told reporters in Jakarta the out-of-cycle meeting is a pre-emptive step ahead of the Federal Reserve’s next policy decision on June 14.

That would give Bank Indonesia the chance to adjust policy before the Fed’s expected tightening move. Indonesia’s regular monthly meeting was scheduled for two weeks after the Fed decision.

Like central banks in emerging markets from Argentina to Turkey, Bank Indonesia is stepping up its action to stem a global rout triggered by rising US interest rates and a stronger dollar.

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