TEMPO.CO, Jakarta - Bank Indonesia (BI) governor Agus Martowardojo said that his institution will watch a decline in the United States Federal Reserve`s (The Fed) balance sheet. Over the last few years, the Fed’s balance sheet increased from US$800 billion to US$4.5 trillion.
“The Fed is planning to reduce its balance sheet. This could have an impact on the world’s economy and global financial market,” Agus said during the launch of a report on Indonesia’s economy for 2016 at the BI Complex in Jakarta on Thursday, April 27, 2017.
The central bank's senior deputy governor Mirza Adityaswara said that the decline in The Fed’s balance sheet would cause a contraction, in addition to a plan to increase the Fed Fund Rate (FFR) three times this year.
“The key is that we must be able to control inflation if we wish to prevent the interest rate from increasing,” he said.
According to Mirza, Bank Indonesia must also be able to keep the balance of payment healthy in a bid to maintain the economic stability.
“However, we need to continue the structural reform. We believe that the President is committed to realizing the structural reform,” he added.
Earlier, Agus pointed out a number of risks that could affect Indonesia’s economic growth. He said that the global economic growth could be lower than expected if economic consolidation efforts in developed countries were below expectations.
Agus added that there were other risks related to the protective policies implemented for international trades and global inflation.
According to Agus, Indonesia’s challenge this year is to increase tax state revenue and expand the fiscal stimulus space.
“We hope that a consolidation will be conducted soon so that corporations and banks can expand their businesses,” he said.
ANGELINA ANJAR SAWITRI
