Indonesia strengthens fiscal-monetary coordination to boost rupiah

Bank Indonesia (BI) and the Ministry of Finance are intensifying their collaboration on fiscal and monetary policies to bolster the stability of the Indonesian rupiah's exchange rate and support national economic growth. Governor Perry Warjiyo of Bank Indonesia emphasized the close and ongoing coordination between the fiscal and monetary authorities in a press conference Saturday in Jakarta.

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Strengthening fiscal and monetary coordination is something we continue to do, and the focus now is on how fiscal and monetary policies move in unison, supporting and strengthening each other with their respective authorities. To strengthen joint efforts in stabilizing the rupiah exchange rate.

Warjiyo explained that the strengthened coordination focuses on ensuring fiscal and monetary policies work in tandem, mutually reinforcing each other within their respective authorities. This synchronized approach is crucial for stabilizing the rupiah's value. He outlined two key steps agreed upon to achieve this.

The first step involves increasing the attractiveness of domestic financial instruments' yields. This measure aims to draw back foreign capital inflows, which have seen some outflow due to rising interest rates abroad. By enhancing returns on investments like stocks and government bonds (SBN), both fiscal and monetary authorities seek to encourage significant inflows, thereby supporting the rupiah's stability.

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The first is to increase the attractiveness or yield so that portfolio inflows return. With rising foreign interest rates, there is indeed an outflow. There are stocks, SBN, and also a small amount in SRBI. Therefore, fiscal and monetary authorities agree to jointly increase the attractiveness of yields so that these inflows return in large numbers and support the stability of the rupiah exchange rate.

The second step focuses on maintaining adequate liquidity in the money and banking markets. This will be achieved through careful management of government cash reserves, which will remain deposited with Bank Indonesia. Concurrently, Bank Indonesia will increase the remuneration, or interest, paid to the government on these deposits. This ensures that monetary operations continue to support rupiah stability while fiscal operations provide complementary support.

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The second is to jointly maintain adequate liquidity in the money market and banking sector, by managing government cash reserves to remain in BI, but of course, with increased remuneration or interest paid by BI to the government. Thus, monetary operations continue to support the stability of the rupiah exchange rate while fiscal operations also support it.

Minister of Finance Purbaya Yudhi Sadewa affirmed full support for these coordinated efforts, stating that synchronizing policies will optimize their impact on the economy. This ongoing synergy is designed to be sustainable, aiming to maintain macroeconomic stability while simultaneously fostering national economic growth in response to evolving economic dynamics.

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We agree that we will continue to strengthen this coordination of fiscal policy, which has been strong so far, and it will be continuously strengthened in a mutually supportive and reinforcing manner to jointly promote economic growth and macroeconomic stability in accordance with existing dynamics.