Incentive from Bank Indonesia

ANTARA FOTO/ADITYA PRADANA PUTRA

President Joko Widodo accompanied by Governor of Bank Indonesia (BI) Perry Warjiyo (right, facing camera) walk after giving a speech at the 2019 Bank Indonesia Annual Meeting in Jakarta on Thursday (11/28/2019) night.

Bank Indonesia has cut its policy rate again to 3.75 percent to support the national economic recov-ery. Nevertheless, the central bank must remain alert.

Bank Indonesia (BI) Governor Perry Warjiyo said the central bank’s decision to cut rate was moti-vated by a decline in global uncertainty and economic improvement in the third quarter, although the economy is still contracting.

According to Statistics Indonesia (BPS), the economy grew by 5.05 percent quarter-on-quarter (qoq) in the third quarter, albeit recording a 3.49 percent year-on-year (yoy) contraction, after shrinking by 5.32 percent yoy in the previous quarter.

Inflation in October was recorded at 0.07 percent, suggesting improved consumer confidence.

The COVID-19 pandemic has adversely affected the economy. Household spending went down, as reflected in monthly deflation between July and September. Inflation in October was recorded at 0.07 percent, suggesting improved consumer confidence. Another challenge is an increase in unem-ployment by 4 to 5 million people to a total of 11 million people this year. Meanwhile, the number of poor people increased by 1.63 million people between September 2019 and March 2020 to 26.42 million.

Also read: Lower Interest Rate Expected to Accelerate Economic Recovery

These facts point to a need for further stimulus to accelerate the national economic recovery. BI has done its share by financing this year’s fiscal deficit and relaxing financial regulations, which are val-ued at Rp 680 trillion as of November 17. BI’s stimulus is applicable to all companies, including com-panies that were in trouble before the pandemic hit. This policy may hide actual conditions and place a burden on the economy later.

AFP/GOH CHAI HIN

Customers gather at a street stall in Jakarta on November 5, 2020, as Indonesia tumbles into first recession since the Asian financial crisis.

But still, we support BI’s latest policy decision, which is needed to accelerate the benefits of previous policies. We want our banking system to immediately cut lending rates through efficiency, as well as finding new ways to guarantee new loans. For instance, the guarantee could be future business pro-spects, and additional financing should be provided for startups that are growing because of the new digital era.

The reality, however, shows that our banking system is quick to cut rates for savers but slow to re-duce lending rates. Cuts to saving rates will push savers to move their assets to other investment in-struments or increase their amount savings by sacrificing consumption in order to maintain a certain amount of nominal return.

BI’s latest policy move will affect investment in the financial market, but we want the impact to be immediately felt by businesses that need it the most, such as micro, small and medium enterprises (MSMEs). By taking an appropriate follow-up policy, BI’s decision to cut its policy rate can stimulate the real sector, improve lending for businesses, increase production and consumption, as well as turning over the economy.