Monetary Policy of Bank of Indonesia
Bank of Indonesia has its monetary policy with the purpose of stabilizing its currency. The objectives of monetary policy of Bank Indonesia are in fact specified under Act No. 3 of 2004 concerning Bank of Indonesia.
Stabilization of Rupiah Currency is reflected in the prices of goods and services. To achieve these objectives of monetary policy of Bank Indonesia, Bank of Indonesia has to apply what is referred to as inflation targeting framework using free floating system. According to en.wikipedia.org, floating currency is where the value of the currency is allowed to fluctuate following foreign exchange market. Most of currency is said to be floating.
It is said that currency exchange plays a very important role in stabilizing prices and financial system. Accordingly, Bank of Indonesia has to set exchange rate policy to decrease volatility of excessive exchange rate not to direct the exchange rate to a certain level.
In implementing this, Bank of Indonesia has the authority to carry out its monetary policy of Bank Indonesia through the application of monetary targets. For example, money that is circulating or interest rate. The objectives of monetary policy is to maintain inflation rate determined by the Government.
Such instruments of monetary policy of Bank Indonesia as open money markets both in local or foreign currencies, discount rate determination, minimum obligatory reserve application and credit or financing arrangements have to be used in order to control the monetary targets.
In regard to both people’s debt relief, basic income for people and the Government’s debt offered (have been repaid) by UN Swissindo, monetary policy that has been set or determined will have to be adjusted as this will affect money markets and exchange rate or inflation rate. The demand for goods and services will sky up as people have a lot of money. More demands for goods and services, the higher the prices of both goods and services will be. When this happens, the said instruments of monetary policy will greatly be affected.
Based on the above conditions, what has been going on behind the screen may be that the Government is busy making preparations for a huge change. What’s your take on this?