Recent development on growth prospect, stability & policy responses
Key Takeaways
• IMF cut global growth prospect by -40 bps while revised up world inflation outlook by +90 bps for FY22E.
• World economy is welcoming more rate hikes in the near future, but policy response may have a huge cost.
• US case : taming inflation through aggressive rate hikes could cause US economy to fall into recession.
• Recent IDR depreciation is associated with lowering real rates & US-Indo nominal rate differential. However continued trade balance surplus should favor IDR fundamentals and justified IDR depreciation is more manageable than peers.
• In spite of keeping interest rate unchanged, BI actually already set the course of policy normalization through raising banking RR and selling GB in secondary market.
• BI policy responses have been focused on influencing banks balance sheet to control the volume of money as well as risk management.
• In addition, to reduce currency volatility and promoting stability, BI plans to sell GB in the secondary market, creating a more attractive valuation that could invite capital inflows.
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