Bank Indonesia Reminds Fed Tapering Still Potentially Generates Uncertainty

Bank Indonesia/Photo: www.bi.go.id

JAKARTA - Bank Indonesia (BI) has warned that reducing asset purchases, aka tapering off, the Central Bank of the United States (US), The Fed, will still have the potential to create uncertainty and increase volatility in financial markets.

"This can pose significant challenges to economic recovery and financial stability in emerging market countries", said BI's Chief Executive Director of Foreign Exchange Management, Rudy Hutabarat, at the 2022 Annual Investment Forum in Jakarta, Saturday, January 29.

However, he expects the Fed's normalization to be less impactful than the taper tantrums that occurred in 2013.

This possibility is due to better communication of authorities in providing policy signals and current economic and financial conditions are better than in 2013.

Therefore, Rudy thinks that it is important to discuss setting policies for smooth economic strategy, with different conditions across countries, as well as discussing ways to strengthen global risk monitoring and mitigate negative spillovers.

The discussion will also be carried out in various series of G20 meetings in Indonesia.

"We will face potential divergence in monetary policy between central banks along with differences in the speed of the post-pandemic recovery process, so this is important to discuss", he said.

According to him, some countries are recovering faster than others, creating a difference in economic development and policy responses.

Thus, the normalization of monetary policy, especially by the main central banks, will certainly have a broad impact on global financial markets, especially on capital flows in emerging market countries.