Monetary And Financial Stability Faces Many Problems, Governor Of Bank Indonesia: Needs To Be Thoughtful And Carefully

JAKARTA - Governor of Bank Indonesia (BI) Perry Warjiyo said that all the world's central banks are now facing very complex challenges. Starting from the impact of war, global disruption chains, and global financial turmoil.

"We are currently facing problems that affect monetary and financial stability," said BI Governor Perry Warjiyo at the G20-2022 Gala Seminar, quoted by Antara, Sunday, July 17.

He said the world was facing rising inflation. The problem is, the spike in inflation this time comes from the supply side due to global supply chain disruptions and the impact of the war in Ukraine.

But if the increase in inflation comes from the supply side, several countries, including a number of developing countries, also experience an increase in their domestic demand side.

With that, Perry said that the problem must be considered carefully and whether it is necessary to solve all the problems with an increase in the benchmark interest rate or it is also necessary to respond from the supply side.

In addition, he continued, the world is also feeling the impact of the increase in the benchmark interest rate of the United States Federal Reserve (Fed) and other central bank interest rates.

"Of course the respective domestic mandates need to come first, but how to overcome these impacts in a very open global economy? What are the impacts on capital flows and exchange rate volatility? Are interest rates sufficient to overcome, not only inflation but also the impact of capital flows propagation and other aspects," said Perry Warjiyo.

Therefore, he argues that this is a problem, especially because in terms of financial stability, the central bank is still dealing with the scarring effects. As for the bruises, some sectors seem to have recovered. However, there are still several other companies that are still in the process of recovering.

Therefore, Perry Warjiyo considers all these problems very challenging and complex for central banks around the world, especially how to balance to restore price stability.

But at the same time, the central bank must also cope with the volatility of capital flows and exchange rates, but still not exacerbate the global economic slowdown.

"This is a very complex job, a very different episode from the past where most of the problems came from the demand and all from the financial sector. This time, a lot of them came from the supply side," Perry said.