Jakarta, VIVA \u2013 Bank Indonesia\u2019s (BI) policy of raising benchmark\ninterest rates is assessed to have not yet delivered an optimal impact\non strengthening the rupiah\u2019s exchange rate. Rather than stabilising the\ncurrency, the move is viewed as one of the triggers for foreign capital\noutflows from the domestic market.<\/p>\n
Economist Gede Sandra assesses that the monetary situation currently\nfacing Indonesia shares similarities with the economic dynamics\nexperienced by Brazil in 2002. \u201cThis is something that could actually\nhave been avoided if the Central Bank\u2019s response had been more precise.\nInstead, it seems to be making matters worse,\u201d said Gede Sandra, as\nquoted on Monday, 8 June 2026.<\/p>\n
Referring to research by economist Olivier Blanchard (2004), Gede\nexplained that Brazil once took similar steps by raising interest rates\nto curb inflation. However, that policy was met with a negative market\nresponse, triggering investor panic, capital flight, and currency\ndepreciation. \u201cThe hope was for the currency to appreciate, but instead,\nit weakened. The problem is, the experience in Brazil has not served as\na lesson for the monetary authorities at Bank Indonesia,\u201d Gede\nnoted.<\/p>\n
Market concerns, according to Gede, are further exacerbated by\nIndonesia\u2019s debt ratio, which currently stands at approximately 40 per\ncent of Gross Domestic Product (GDP)\u2014a figure approaching Brazil\u2019s\nposition at that time (50-60 per cent). Additionally, the yield on\nIndonesian government bonds has risen to the 7 per cent level.<\/p>\n
\u201cWhen the Central Bank authorities raise monetary interest rates,\nbond yields also rise. Investors see this and fear the possibility of a\ndefault,\u201d he explained.<\/p>\n
On the other hand, Gede highlighted a misalignment between BI\u2019s\nmonetary policy and the government\u2019s fiscal performance, which has shown\npositive results so far. According to data from April, the state\u2019s\nfinancial performance was impressive, with revenues reaching IDR 918\ntrillion and expenditure at IDR 1,024 trillion, keeping the deficit at\n0.64 per cent. Furthermore, the primary balance managed to record a\nsurplus after being negative in the first quarter, in line with the\ncontinued positive trend in the trade balance. However, these\nachievements in the real and fiscal sectors are deemed inconsistent with\nthe direction of monetary policy.<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/criticising-bi-policy-economist-suggests-four-brazilian-tactics-to-save-the-rupiah-1780909143", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }