Rupiah Strengthening Requires Monetary and Fiscal Policy Synergy
The stability of the rupiah exchange rate remains one of the main challenges for the national economy amidst global financial market dynamics and worldwide economic uncertainty. In this situation, policy coordination between the government and Bank Indonesia (BI) is considered an important factor in maintaining investor confidence while strengthening domestic economic resilience.
Economist from Universitas Muhammadiyah Bengkulu, Surya Vandiantara, assesses that the steps taken by Bank Indonesia and the government to increase the yield attractiveness of domestic financial instruments and maintain financial market and banking liquidity are appropriate policies to support the strengthening of the rupiah exchange rate.
According to Surya, increasing the yield on domestic financial instruments has the potential to attract foreign capital inflows to Indonesia’s financial market, particularly through Government Securities (SBN) instruments.
"If portfolio inflows increasingly pour into Indonesia through Government Securities (SBN), the greater the opportunity for the country to manage this foreign capital into programmes that can have a direct impact on increasing national productivity. This will trigger an increase in demand for the rupiah, so the rupiah exchange rate will strengthen against pressure from foreign currencies such as the United States dollar," said Surya.
He explained that the influx of foreign capital not only impacts the strengthening of the rupiah in the short term but can also provide greater financing space for economic development if managed productively.
Additionally, Surya assesses that the policy of managing state cash at Bank Indonesia, which aims to maintain financial market and banking liquidity, also has the potential to provide additional benefits for the state through the remuneration scheme received by the government.
However, he cautioned that the effectiveness of these policies depends heavily on the ability of the financial system to channel liquidity to the real sector.
"The government needs to be careful in managing this policy. The management of state cash at the central bank must be able to be channelled in the form of additional liquidity to the banking system. This policy also needs to be followed by a reduction in the benchmark interest rate, so that business actors can absorb capital more optimally to develop their businesses," he said.
Surya added that close coordination between fiscal and monetary policies is the main prerequisite for the various rupiah strengthening instruments to run effectively. According to him, policy synchronisation will create positive sentiment in the market while increasing investor confidence in Indonesia’s economic prospects.
"Without close coordination, the policy option of increasing yields on domestic financial instruments and maintaining financial-banking market liquidity will never be achieved," he said.
Looking ahead, the biggest challenge lies not only in policy formulation but also in the consistency of its implementation. Surya believes that implementation discipline and a focus on strengthening economic fundamentals will determine the success of efforts to maintain rupiah stability while driving national economic growth.
"The next challenge for the government is the implementation of these two policies. Discipline is needed, as well as a perspective of fundamental economic development, so that both policies can be implemented optimally in order to strengthen the rupiah exchange rate and increase national economic growth," he added.