Iran-US-Israel Conflict Intensifies; Bank Indonesia Monitors Economic Impacts
Bank Indonesia (BI) has stated it is closely monitoring the impact of the ongoing conflict between Iran and the US-Israel alliance, which has recently escalated and captured global attention. BI assured that it will continue to safeguard rupiah exchange rate stability and collaborate to promote economic growth amid global uncertainty and volatility.
BI Deputy Governor Aida S Budiman noted that BI views global economic growth as continuing to move dynamically whilst remaining fraught with uncertainty. From a fundamental perspective, BI observes that global economic growth remains in a slowdown trend.
“Previously, we were still observing whether the Federal Funds Rate (FFR) would decline or not, and when. But now we have an additional development with the new geopolitical tensions from the conflict between the US and Israel against Iran. Bank Indonesia will continue to monitor current indicators,” Aida stated.
Aida outlined three channels that BI considers when assessing current indicator developments. First, commodity prices, particularly crude oil prices, which are predicted to spike due to the Middle East conflict.
“We are already observing developments in oil prices, gold prices, and it is also important to monitor food prices. Because if oil prices increase, there will naturally be impacts on transportation costs and other factors,” she said.
Second, financial markets. Aida affirmed that BI will continue stabilisation efforts for the rupiah exchange rate through interventions amid elevated global risk. “We are observing and monitoring this closely, and one of the immediate concerns is the exchange rate,” she said.
BI will remain present in the market through interventions, including Non-Deliverable Forward (NDF) transactions in overseas markets as well as spot transactions and Domestic Non-Deliverable Forward (DNDF) transactions in domestic markets. BI will also continue optimising policy to enhance the effectiveness of interest rate policy transmission.
Third, trade volumes represent a key channel, as this is certain to impact economic growth, inflation, and other economic data.
“However, Bank Indonesia’s commitment remains to maintain stability, let me emphasise that. We will continue to be present in the market to ensure exchange rate stability is maintained, including inflation management. We will provide fuller details on policy responses at the monthly Board of Governors Meeting,” she concluded.