BI warns 3 challenges in global monetary world

Arif Gunawan Sulistiyono

Bank Indonesia (BI) warns of three main challenges that all the central banks in the world must deal amid the divergence monetary policies and uncertainties in the world politics and economic recovery.

A strong link between political uncertainty and market confidence has become more visible as political shock results in economic and financial fallout, and has tremendous financial stability implication, BI governor Agus Martowardojo said.

“The boundaries would encapsulate three areas. First, pursuing growth objectives after the crisis, where factors impeding the global economy will be discussed, and initiatives to balance structural reform and support for growth will be deliberated,” he said in his remark in the Executives’ Meeting of Asia Pacific Central Banks (EMEAP) on Monday in Bali.

Second, Agus continued, monetary policy tradeoffs in the open economy where challenges stemming from divergent monetary policies, linkages between economic and financial cycles, dealing with capital flow reversal risks, and new roles of exchange rate in external adjustment.

“Third, achieving financial stability in periods of monetary policy divergence, in which important issues such as policy responses to promote financial stability, tradeoffs between financial sector reform and growth, and country experiences with macro-prudential tools,” he said.

The failure in resolving the challenges, Agus said, could trap the world in a vicious circle where policy uncertainty undermining confidence, which might instill slower growth and erode political cohesion, making the crisis legacy challenges harder to resolve, and later induced further increase in uncertainty. (ags)