Since March, BI has increasingly paid attention to risks to economic growth and changed its policy stance to preemptively support economic growth to reduce the impact of the health crisis while managing financial market stability. However, the increasing risk of a deeper global economic contraction coupled with the possibility of a prolonged spread of the virus in Indonesia has created uncertainty in the market since at least early September. As a result, the Rupiah weakened to a level of IDR 14.900 as of September 14 2020. The Rupiah was recorded as the currency with the worst depreciation in developing Asian countries. Meanwhile, the decreasing accumulation of capital inflows pushed government bond yields higher. Even though inflation last month was very low, demand for credit is expected to be restrained in the near future due to the implementation of Large-Scale Social Restrictions (PSBB) in the Jakarta area. This condition provides room for BI to prioritize Rupiah stabilization this month due to the increasing risk of uncertainty in the financial markets. Therefore, we view BI as needing to maintain its policy interest rate at 4,00% this month to maintain financial stability while supporting growth through unconventional macroprudential and monetary policies as a step in encouraging liquidity.

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