The performance of Indonesia's macroeconomic indicators is currently showing improvement, reflected in the increase in the Consumer Confidence Index (IKK), trade balance, and the downward trend in daily Covid-19 cases. This increase was driven by better expectations after Covid-19 vaccination began. However, the impact of positive sentiment from within the country disappeared since the end of February due to quite high pressure from external conditions. Higher-than-expected inflation rates in the US reflecting optimistic economic recovery prospects have hit emerging markets, including Indonesia. The Rupiah depreciated by 3,70% (ytd) in mid-March. The depreciation was driven by massive capital outflows as the yield gap between US assets and developing countries narrowed. In these uncertain conditions, we see that BI is now more careful about increasing external risks. Even though low inflation continues, which indicates that aggregate demand is still weak, BI must prioritize Rupiah stability this month. Any expansionary monetary policy would be too detrimental for BI at this time because economic performance is still far from recovering. Therefore, we see that BI needs to hold the policy interest rate at 3,50% this month as a precautionary measure to stabilize the Rupiah.

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