BI's reduction in the benchmark interest rate last month to 3,75% in an effort to encourage economic recovery was not reflected in the depreciation of the Rupiah, thanks to investor confidence in the domestic market. The Rupiah is relatively under control amidst the prolonged and uncertain pandemic conditions. However, there are still no signs of improvement in aggregate demand in the short term, because the increase in inflation last month was mainly caused by rising prices due to a lack of food supplies during the rainy season. Despite signs of recovery in global demand as reflected in Indonesia's export value in November which was higher than expected, overall economic recovery is still uncertain because we have to look at health conditions and vaccine effectiveness in the future. However, plans for stricter social restrictions due to the increasingly severe pandemic cases throughout the world since early December must be taken into account in the policy decision-making process by the government and BI. If activity stops altogether in an effort to reduce the potential spike in cases during the year-end holidays, consumers will restrain their spending so that aggregate demand will remain low. Furthermore, investors will see this as a bleaker picture of economic recovery and they will hold or return their assets to safer markets. Considering prolonged health crisis conditions and potential implementation
tighter social restrictions, monetary easing with interest rate cuts would be too burdensome and risky for Rupiah stabilization.

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