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Indonesia’s Financial Markets and Monetary Policy Dynamics Amid the COVID-19 Pandemic

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  • Eric Alexander Sugandi

    (Asian Development Bank Institute)

Abstract

We discuss the impacts of the COVID-19 pandemic on Indonesia’s financial markets and monetary policy dynamics. We explore five types of financial markets in Indonesia: (1) the Rupiah (IDR) interbank money market; (2) the US Dollar (USD) interbank money market; (3) government conventional bond (SUN) markets; (4) the stock market; and (5) the USD/IDR spot market. We examine Bank Indonesia’s (BI)'s three monetary policy instruments: (1) BI 7-day Reverse Repo Rate (the policy rate); (2) minimum reserve requirement ratios for banks (GWM); and (3) BI’s monetary operations. We find that several policy instruments have significant impacts on specific financial markets before and during the pandemic, i.e., the policy rate on the IDR and USD interbank money market, the IDR GWM on the medium-term SUN market, and the foreign exchange (FX) GWM on the FX market. We also find that the COVID-19 pandemic strengthened the impacts of BI’s policy instruments on particular financial markets during the pandemic than the pre-pandemic period. We suggest BI continues to maintain the stability of financial markets to support the government efforts to restore the economy from the fiscal side.

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  • Eric Alexander Sugandi, 2022. "Indonesia’s Financial Markets and Monetary Policy Dynamics Amid the COVID-19 Pandemic," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 29(3), pages 411-447, September.
    • Handle: RePEc:kap:apfinm:v:29:y:2022:i:3:d:10.1007_s10690-021-09354-4
    DOI: 10.1007/s10690-021-09354-4
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    More about this item

    Keywords

    COVID-19; Monetary policy; Indonesia’s financial markets; Bank Indonesia;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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