Indonesia advised to brace for long-term support

Monetary easing: Indonesia’s central bank last week joined the wave of global easing with its first rate cut in almost two years. — Reuters

JAKARTA: Indonesia must brace for a long period of global monetary policy easing, which will open the door for more interest rate cuts in South-East Asia’s biggest economy and a possible surge in foreign inflows, the nation’s newest central banker said.

Destry Damayanti, 55, was approved by the parliament yesterday as the senior deputy governor at Bank Indonesia, becoming the No. 2 official at the central bank and the first woman to hold the position since 2009.

In an interview in Jakarta two days before her confirmation, Damayanti said if global uncertainties persist and world growth continues to slow, then the “global easing of monetary policy will go quite long.”

Under those conditions, and given the need to support domestic growth, “I think the room for easing will be quite long, will continue for quite some time for Indonesia,” she said.

The central bank last week joined the wave of global easing with its first rate cut in almost two years.

Economists including Deyi Tan at Morgan Stanley see several more rate cuts in this cycle as policy makers unwind part of the 175 basis points of rate hikes last year.

Lower global interest rates will also “push money to emerging markets” as global investors seek out higher-yielding assets, Damayanti said. That gives authorities the opportunity to undertake more economic reforms to address underlying risks in the economy, like the current-account deficit, she said.

Officials mustn’t be complacent and should instead “double down” on measures to attract longer-term foreign direct investment, she said. Overseas investment in stocks and bonds can be fickle and all it takes is for US President Donald Trump to tweet about “tax or whatever” and “then the money is gone,” she said.

“We still have a huge current-account deficit,” she said. “This is actually the time to double down when we are benefiting from the calm situation which means now we can push the policy.”

Damayanti was President Joko Widodo’s sole pick as senior deputy governor.

A former economist with PT Bank Mandiri, she has been serving as a commissioner at the Indonesia Deposit Insurance Corp, a government agency charged with promoting financial stability.

She replaces Mirza Adityaswara, whose term expired this week.

The incoming senior deputy governor said she will draw on her financial market experience in her new role.

“Right now, we have entered the era of many disruptions” that will sometimes require a “rapid response” and the ability to innovate, she said.

Demayanti stressed she’s a team player and Governor Perry Warjiyo is Bank Indonesia’s “pilot.” But she also showed she’s willing to depart from central bank norm on some issues, challenging policy makers to be more embracing of new technologies like cryptocurrencies.

It’s “something we cannot avoid,” she said.

“Cryptocurrency is a problem not only in Indonesia but also in other countries, all over the world and central bankers are saying we have to watch out, we have to monitor this.”

The digital currencies are “really a challenge for central banks. I don’t want to say threat,” she said. — Bloomberg

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