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Summary

In April 2021, Indonesia's money supply saw significant growth, with a 11.5% increase in M2 (broad money), driven by higher public spending during Ramadan and Idul Fitri. Narrow money (M1), which includes cash and demand deposits, grew by 17.4%. This surge in liquidity reflected rising public incomes, though it raised concerns about inflation. Bank Indonesia’s policies aimed at controlling inflation while supporting economic recovery. Despite challenges like credit contraction, the government set ambitious growth targets for Q2 2021, with efforts to balance fiscal policies and maintain economic stability.

Takeaways

• 😀 The money supply in Indonesia grew by 11.5% in April 2021, indicating increased liquidity in the economy.
• 😀 M2 (broad money) consists of cash, coins, quasi-money, and savings deposits, and its growth shows rising economic activity.
• 😀 M1 (narrow money), which includes cash and coins in circulation, rose by 17.4%, reflecting higher consumer transactions.
• 😀 Quasi-money, representing time deposits and saving accounts, grew by 9.7%, suggesting an increase in savings among the public.
• 😀 Ramadan and Idul Fitri played a role in the higher liquidity due to increased consumer spending during these periods.
• 😀 While the increase in money supply can signal higher income levels, it also poses inflation risks that need to be managed.
• 😀 Inflation was at 1.42% in April 2021, with the government targeting a 3% inflation rate for the year.
• 😀 The Bank Indonesia policy rate was maintained at 3.5%, encouraging borrowing and investment to support the economic recovery.
• 😀 Credit contraction continued at 2.4%, reflecting cautious lending due to pandemic-related uncertainties and risks.
• 😀 The Indonesian government aims for 7.1%-8.3% GDP growth in the second quarter of 2021, contingent on maintaining financial stability.
• 😀 Coordinated efforts between Bank Indonesia, the Ministry of Finance, and OJK are crucial for achieving positive economic growth and stability.

Q & A

What is the growth rate of the money supply in Indonesia as reported by Bank Indonesia in April 2021?

The money supply in Indonesia, as reported by Bank Indonesia in April 2021, grew by 11.5%.

What factors contributed to the increase in the money supply in April 2021?

The increase in the money supply was driven by the Ramadan period and the upcoming Eid festivities, which typically lead to higher consumer spending and increased income.

What is the difference between M1 and M2 money supply in Indonesia?

M1 refers to narrow money, which includes cash (coins and banknotes) and demand deposits, while M2 refers to the broad money supply, which includes M1 plus savings deposits and time deposits.

How much did M1, or narrow money, increase in April 2021?

M1, or narrow money, increased by 17.4% in April 2021, reaching IDR 1,851.2 trillion.

What is quasi-money, and how did it change in April 2021?

Quasi-money includes savings deposits and time deposits. In April 2021, quasi-money increased by 9.7%, reaching IDR 5,088 trillion.

How did Bank Indonesia manage inflation during this period?

Bank Indonesia maintained a low benchmark interest rate of 3.5% to help manage inflation and stimulate the economy. Inflation was recorded at 1.42%, well below the target of 3%.

What was the inflation rate in Indonesia in April 2021, and how did it compare to the target?

The inflation rate in April 2021 was 1.42%, which was lower than the target inflation rate of 3%, with a standard deviation of plus or minus 1.

What are the main concerns when the money supply increases in an economy?

When the money supply increases, there is a risk of inflation. It is essential for the central bank to manage the liquidity to avoid runaway inflation, which could negatively impact the purchasing power of consumers.

What economic growth target did the government set for Q2 2021?

The Indonesian government set a GDP growth target of 7.1% to 8.3% for Q2 2021, reflecting an optimistic economic recovery after the pandemic.

Why was there a contraction in credit growth during the pandemic, and how did it improve in April 2021?

Credit growth contracted during the pandemic as banks minimized risks and carefully assessed loan applicants. However, in April 2021, the contraction in credit was reduced to 2.4%, down from 3% in 2020, indicating a gradual recovery in credit issuance.