Big data is new push for Bank Indonesia as it reviews rates

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(Bloomberg) -- Bank Indonesia is turning to the machines to help make its policy more effective.

In a country of 260 million people spread across more than 17,000 islands, gathering the right kind of information at the right time presents a unique challenge to the central bank. Explosive growth in internet use and social media among Indonesia’s young and growing population has opened up new data sources that policy makers are using to plug gaps in the official numbers.

Take the jobs data. Indonesia’s statistics agency publishes employment data every six months, so the central bank is supplementing that with information extracted from online jobs portals, said Yati Kurniati, the head of Bank Indonesia’s statistics department. In the absence of official figures, the bank is also collecting data on the secondary property market from online housing sources to give it a better sense of the health of the economy.

“Every central bank is talking about the digital economy: how we measure it and how it will have an impact on our policy,” Kurniati, who took on her new role in March, said in an interview at her office in Jakarta. “The machines can screen very large amounts of information,” she said, although “we still have to use our own eyes to make sure the context is appropriate.”

The department’s work is feeding straight into policy decisions. For 15 days before an interest rate announcement, the unit scours social media, news sites and other content on the internet to monitor public perception and rate expectations, and transmit that to Governor Agus Martowardojo and his board. The response from policy makers has been “very positive,” Kurniati said.

After eight rate reductions since the beginning of last year, all 23 economists surveyed by Bloomberg predict the bank will keep its benchmark interest rate unchanged at 4.25 percent on Thursday, even though President Joko Widodo still thinks there’s room to cut. Martowardojo said last week that future rate decisions will depend on the economic data.

Like its counterparts in Russia, China, the U.K. and elsewhere, Bank Indonesia is increasingly turning to so-called big data sources -- which cover everything from online stores to social media and datasets produced by tech companies -- to get ahead of the information curve. With private spending contributing more than half of the economy, measuring consumer patterns and labor market dynamics are key to making policy effective.

The latest puzzle over sluggish consumer spending is a case in point. Despite the aggressive easing in monetary policy, retail sales growth remains well below the double-digit pace of past years, while private consumption has failed to pick up strongly. That’s been one of the reasons -- along with a subdued inflation environment -- why policy makers resumed rate cuts this year, in August and September.

Information gathered from big data sources and the so-called internet of things -- data stored on everyday gadgets, like coffee machines and fridges, that are linked up by wireless technology -- can’t replace conventional statistics, but plays a crucial role, said Kurniati.

Data Gap

“Big data cannot solve all the problems,” she said. “It helps to provide information more rapidly and it fills a data gap.” It can help “complete the big picture,” she said.

The growth in online shopping means Bank Indonesia is now receiving “flows of information” from some of the biggest players in Indonesia’s e-commerce market, Kurniati said, without disclosing the names of the companies. PT Tokopedia and Alibaba Group Holding Ltd.’s Lazada are among the most popular online retailers in Indonesia.

Online transactions surged more than 400 percent to 17.8 trillion rupiah ($1.3 billion) last year from 2015 and are already at 13.8 trillion rupiah in the first eight months of the year, according to figures from Bank Indonesia.

The proportion of Indonesians with access to the internet remains low -- at about 51 percent, compared with Malaysia at about 70 percent -- reflecting the growth potential for e-commerce. Macquarie Research estimates the market can expand to $65 billion by 2020 from $8 billion today.

Charu Chanana, an economist at Continuum Economics in Singapore, said the expansion of data sources will help Bank Indonesia respond to challenges more effectively.

“Over time they will be able to refine it and make it more accurate, which of course, will help them with their decisions,” she said. “When you know the exact regions or the exact sectors that are not responding to government measures then you can dig down into those” and seek a targeted solution, she said.

--With assistance from Yudith Ho

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