Indonesia’s Inflation Eases to the Central Bank’s Target Earlier Than Predicted

Indonesia’s annual inflation eased to 4% in May, earlier than the central bank’s expected target range. This is shown through data from the statistics bureau on Monday. Inflation in Southeast Asia’s largest economy has been above Bank Indonesia’s (BI) target range of 2 to 4% since June 2022 because of the pressure from rising global food and energy prices.

Soaring almost 6% in September, inflation has eased step by step after the central bank raised interest rates by a total of 225 basis points. This rate of inflation, which wiped out government-controlled and volatile food prices, fell from 2.83% in April to 2.66% in May.

However, BI expects headline inflation to fall to its target in the third quarter, with core inflation remaining within the same target range throughout the year. This was disclosed at the last BI policy meeting.

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Pudji Ismartini, Deputy Head of the Central Statistics Agency, linked the slow inflation with the drop in ticket prices after Eid.

Radhika Rao, an economist at DBS Bank said that Indonesia’s inflation continued to decline as the effects of seasonal celebrations faded and administrative measures helped to calm food costs. He hopes BI can maintain a neutral policy stance, but pivot towards easing in the third quarter.

Wisnu Wardana, an economist at Bank Danamon predicts that BI will keep interest rates unchanged throughout the year. This is because downside risks from falling global food prices are offset by rising oil prices due to production cuts by OPEC+.

BI Governor Perry Warjiyo said in a parliamentary meeting that the bank’s interest rate policy would adhere to inflation developments. He also emphasized his belief that the rupiah will strengthen against the US dollar until 2024 due to improved fundamentals.

To easing the inflation, BI plans to lowering the inflation target to be in the range of 1.5 percent to 3.5 percent

Source: CNA

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