Indonesia central bank pledges to extend monetary stimulus to 2021

ECONOMIC GROWTH - JAKARTA. Indonesia's central bank governor pledged on Thursday to extend monetary stimulus into 2021 to support the economy, as the country's president urged Bank Indonesia (BI) to take on a bigger role in government-led reforms, including job creation.

"Bank Indonesia (BI) will continue to direct all policy instruments to support national economic recovery," Governor Perry Warjiyo told an annual meeting with senior government officials and top bankers in Southeast Asia's largest economy.

"Monetary stimulus will continue in 2021," he said, adding that BI's benchmark rate would remain low until "inflationary pressure signs begin to appear".

So far this year, BI has cut interest rates five times to a record low, carried out 682 trillion rupiah ($48.37 billion) in quantitative easing, including 369.5 trillion rupiah of direct purchases of government bonds, and relaxed lending rules in response to the economic impact of the coronavirus pandemic.

Warjiyo said the measures amounted to one the biggest stimulus programmes across emerging markets, while noting that bond purchases would hurt BI's balance sheet from 2021 onwards.

BI expects the economy to grow within a range of 4.8% to 5.8% in 2021, compared with a contraction of 1% to 2% this year, he said.

The 2020 forecast would be Indonesia's worst economic performance since the 1998 Asian financial crisis.

Warjiyo also repeated a call for commercial banks to lower credit rates and expand lending.

Speaking at the same meeting, President Joko Widodo called on BI to take on "a more significant role in the fundamental reforms that we are currently executing", including a greater contribution to support the real sector and encourage job creation.

While he did not refer to any specific measure, his administration and some lawmakers last month filed a draft bill on the financial sector which included a proposal to add economic growth and employment to BI's mandate, on top of price stability.