Indonesia has swallowed the bitter pill, signaling a significant shift in its economic policy. This includes raising interest rates and oil prices to restore investor confidence and maintain economic stability.
June 10, 2569 at 16.26:XNUMX a.m., Reuters reported that Indonesia is sending a significant signal that the government is ready to make difficult decisions. To halt the crisis of investor confidence that is pressuring one of Southeast Asia's largest economies.
Over the past several months, investors have been concerned about President Prabowo Subianto's populist policies, particularly the perceived pressure on the central bank to implement monetary policies that support economic growth, as well as the extensive spending on welfare programs and energy subsidies.
These concerns led to a continued weakening of the rupiah and heavy selling pressure on the Indonesian stock market. However, signs of a turning point began to appear when the Bank of Indonesia (BI) surprised the market by raising its policy interest rate by 0.25% outside of its regular meeting schedule last Tuesday.
A source familiar with the decision revealed to Reuters that: This interest rate hike was fully supported by the government, and there was no opposition at the meeting. It is viewed as a bitter pill that must be swallowed in order to revive the economy and market confidence, while many analysts expect another interest rate hike at next week's scheduled meeting.
This stance differs from Prabowo's previous approach, which focused on stimulating growth to achieve the 8% economic expansion promised during his campaign. Since taking office in October 2024, the central bank has already cut interest rates five times.
In addition to raising interest rates, the central bank and the finance department also agreed to slow down the liquidity injection measures into the financial system, which is seen as another factor pressuring the rupiah.
Perry Warjiyo, Governor of the Central Bank We are also accelerating communication with investors in Europe, the United States, and Asia to explain the rationale behind the decision and build confidence in economic policy.
The response was immediate, with the rupiah strengthening by more than 1% to 17,940 rupiah per dollar after hitting several lows in recent weeks. Meanwhile, the Indonesian stock market index surged nearly 10% in the last two trading days.
Oil prices were raised for the first time since the Iran-Iran war.
Just hours after raising interest rates, the Indonesian government announced a 32% price increase for two popular types of gasoline, marking the first price hike since the Iran-Iran conflict fueled soaring global oil prices.
In the past, the government has spent large sums of money fixing energy prices to maintain political popularity, resulting in subsidies for fuel, electricity, and fertilizer soaring by 208% compared to the previous year, reaching 203 trillion rupiah, or approximately $11,300 billion, at the end of May.
These burdens are beginning to put pressure on the country's fiscal position, even though the government insists that public finances remain under control.
The government also signaled a delay in expanding the $20,000 billion free food program, a flagship policy of Prabowo, with the budget cut to $15,000 billion and the opening of new kitchens temporarily suspended.
The project aims to benefit over 83 million people, but it remains a key concern for investors regarding spending efficiency and fiscal discipline.
From a focus on growth to a focus on stability.
Analysts view interest rate hikes and rising energy prices as signals that the government is shifting its focus from prioritizing economic growth to placing greater emphasis on economic and financial stability.
Krystal Tan, an economist at ANZ. It was stated that both measures were carefully calculated policy responses and reflected a shift by policymakers towards allowing market mechanisms to function more, rather than attempting to resist economic pressures.
side Muhammad Rizal Taufikurahman from INDEF Institute. They said that raising interest rates along with rising oil prices is a clear signal that the government and central bank are shifting from a pro-growth approach to a pro-stability approach.
"Economic realities are forcing governments to prioritize stability over ambitious growth targets." he said
However, economists warn that while these measures may alleviate short-term concerns, restoring the credibility of economic policies in the long term is more crucial.
"This combination of monetary and fiscal policies is like pouring salt into the sea; it may provide temporary relief, but it cannot address the fundamental problems: policy errors and declining confidence in policymakers." Analysts from the University of Indonesia said...
refer : www.reuters.com
