BI Says Global Economic Risks Are Increasing

BI Governor Perry Warjiyo (Photo: dock. Antara)

JAKARTA - Bank Indonesia (BI) revealed that the risk of the global economy is getting higher accompanied by increasing geopolitical tensions and trade fragmentation.

BI Governor Perry Warjiyo said political developments in the US were predicted to be followed by more expansionary fiscal policy directions and domestic-oriented economic strategies (inward looking policy), including the application of high trade rates and strict immigration policies.

"This development will have an impact on the risk of slowing economic growth and increasing world inflation again," he explained at a press conference, Wednesday, November 20.

According to Perry, the process of reducing inflation in the US will run more slowly so that the reduction in the Fed Funds Rate (FFR) rate is also predicted to be more limited.

Meanwhile, Perry conveyed that the greater financial deficit financing needs encourage increased US Treasury yields, both short-term and long-term.

"The political change in the US has had an impact on the broad strengthening of the US dollar, as well as the reverse preference of global investors by moving their portfolio allocation back to the US," he explained.

According to Perry, this will result in the pressure of weakening the exchange rate of various world currencies getting higher and there is an outflow of foreign portfolios, including from the Emerging Market (EM) country.

Therefore, Perry conveyed that strengthening the policy response was needed to strengthen external resilience from the negative impact of the global ban on the economy in EM countries, including Indonesia.