Governor of Bank Indonesia (BI) Perry Warjiyo has said that all central banks in the world are now facing very complex challenges, owing to the impacts of war, global disruption chains, and global financial turmoil, among others.
“We are currently facing problems that affect monetary and financial stability,” Warjiyo said while speaking at the 2022 G20 Gala Seminar in Nusa Dua, Bali, on Sunday.
The world is facing rising inflation currently following the global supply chain disruptions and the impact of the war in Ukraine, according to him.
But if the increase in inflation comes from the supply side, several countries, including a number of developing countries, also experience a domestic demand increase.
Hence, the problem must be considered carefully and whether it is necessary to solve all the problems with an increase in the benchmark interest rate or it is also necessary to respond the supply issue.
The BI governor added that the world is also feeling the impact of the increase in the benchmark interest rate of the United States Federal Reserve (Fed) and other central banks’ interest rate surge.
“Of course the respective domestic mandates need to come first, but how to overcome these impacts in a very open global economy? What are the impacts on capital flows and exchange rate volatility? Are interest rates sufficient to overcome, not only inflation but also the impact of capital flows propagation and other aspects,” Perry Warjiyo said.
He viewed the problems very challenging and complex for central banks around the world, especially how to balance them to restore price stability.
At the same time, the central banks are expected to cope with the volatility of capital flows and exchange rates, without exacerbating the global economic slowdown.
“This is a very complex job, a very different episode from the past where most of the problems came from demand and all from the financial sector. This time, a lot of them come from the supply side,” he said.
Source: Antara News