TEMPO.CO, Jakarta - Bank Indonesia (BI) anticipates that the United States economic policies under the Donald Trump administration could trigger higher global inflation. BI examines the impact of U.S. tariff policies, tax incentives, and stricter labor policies. Increased inflation in the U.S. is expected to slow down potential cuts to the Federal Reserve's benchmark interest rates, creating uncertainty in global financial markets, including Indonesia.

"Higher inflation in the U.S. will make the expectation of a decrease in the Fed's interest rates slower than previously estimated. This will also impact the increase in U.S. bond yields, making assets in developed countries more appealing to investors," said the Director of the Economic and Monetary Policy Department of Bank Indonesia, Juli Budi Winantya, during the Economic and Monetary Policy discussion at the Bank Indonesia Aceh Building, on Friday, February 7, 2025.

According to Juli, there are three main factors that drive the surge in U.S. inflation. First, import tariffs increase the price of goods, driving inflation from the cost of production side. Second, corporate tax incentives potentially increase demand and economic growth, but at the same time widen the U.S. fiscal deficit. Third, tighter labor policies may increase wage costs and further accelerate inflation.

Under these conditions, global investors tend to withdraw their funds from developing countries and invest in safer assets in the U.S. BI noted that capital inflows to Indonesia have started to decline as global uncertainty has intensified.

Amid these global dynamics, BI reiterates that Indonesia's external sector resilience is still relatively strong. The trade balance surplus has been maintained until the end of 2024, and the national economic growth in 2024 reached 5.03 percent, better than many other countries. However, BI remains vigilant about the potential impacts of global inflation.

BI has outlined several measures to address these challenges:

1. Maintaining the Stability of the Rupiah Exchange Rate

BI continues to intervene in the foreign exchange market to dampen the volatility of the exchange rate and to ensure a stable supply of liquidity.

2. Strengthening Foreign Exchange Reserves

With foreign exchange reserves reaching US$156.1 billion as of January 2025, BI is confident in Indonesia's economic resilience to external shocks.

3. Adjusting Interest Rate Policies

BI will continue to monitor the development of global inflation and the Fed's policies before taking steps related to domestic benchmark interest rates.

4. Enhancing International Cooperation

BI is renewing the Bilateral Currency Swap Arrangement (BCSA) agreement with the People's Bank of China to strengthen transactions in local currency and reduce dependence on the US dollar.

With this combination of steps, BI is optimistic that it can maintain macroeconomic stability and mitigate the impacts of global inflation. "We continue to coordinate with the government and various related parties to ensure that the policies taken are capable of maintaining the stability of the national economy," said Juli.

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