Inflation Has the Radicals Crawling to the Center
Indonesia audaciously tested the outer limits of Covid-era easing. Now, it sounds downright hawkish.
Thoroughly mainstream.
Photographer: Bernd von Jutrczenka/picture alliance via Getty Images
Some of the most radical practitioners of monetary easing are falling into line. The first two years of the pandemic were defined by ultra-low interest rates and a rare degree of experimentation to boost growth and steady markets. This wasn't just a feature of advanced economies: Emerging markets also jumped into the fray. Few were as bold as Indonesia, though, which used the central bank to directly finance an expansion in government spending. That it’s turning hawkish is a stark reminder of how times have changed.
Bank Indonesia Governor Perry Warjiyo now finds himself in the business of forecasting Federal Reserve rate hikes. He predicts four increases, beginning as soon as March, a pace and timing that Fed Chair Jerome Powell has yet to endorse. What transpires in Washington has important consequences for Indonesia, which is prioritizing the stability of its currency and financial markets.