Indonesia: Bank Indonesia to reduce liquidity in 2022

  • Indonesia’s central bank plans to reduce the amount of excess liquidity in the banking system 2022 without disrupting lending, but will keep interest rates low until it sees signs of inflation rising, its governor said on 24 Nov 21.
  • This would reflect a shift in Bank Indonesia’s (BI) monetary policy stance to “pro-stability” in 2022, from “pro-growth” currently, Perry Warjiyo said, adding that the bank’s other policies will remain supportive of the economic recovery.
  • The reduction in excess liquidity would be BI’s first move to unwind its pandemic-era, ultra-loose monetary policy.
  • Warjiyo’s remarks, made at an annual gathering with financial stakeholders, were in line with his earlier comments on 2022 policy tightening plans, even as BI downgraded its 2021 economic outlook after disappointing third quarter growth.
  • “Excess liquidity in the banking system, which is currently very large, will be reduced gradually and cautiously so as not to interfere with the ability of banks in lending and purchasing of state securities to finance the state budget,” he said.
  • “The policy of low interest rates… will be maintained until there are early indications of rising inflation.”

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