Indonesia's Budget Squeeze Multiplies Monetary Policy Dilemmas

Indonesia's budget squeeze multiplies monetary policy dilemmas Despite repeated interest rate hikes, the rupiah has continued to weaken as rising debt-servicing costs, constrained fiscal space and fragile investor confidence reduce the effectiveness of monetary policy. This produces a growing fear that Indonesia has less flexibility to respond to economic shocks than it once did. As fiscal and monetary trade-offs become more acute, preserving policy credibility will be vital to safeguard Indonesia’s financial stability.