Price pressures have been subdued with the basic food component pushing headline inflation closer to the lower-end of the 2.5-4.5% inflation target. Meanwhile, prepared food, beverages, tobacco and utilities were the main contributors to the latest 2.57% inflation reading for February. Meanwhile, core inflation, which strips out some food items as well as government influenced transport and utilities was also well-behaved, settling at 3.06% for the month of February.
One factor that has helped inflation settle at the lower-end of the 2.5-4.5% target has been the ability of Indonesia to import important grains which has ensured adequate supply domestically, something that Prabowo has vowed to cancel should he take power.
For the time being, inflation is forecast to remain within the lower end of the inflation target with Bank Indonesia (BI) shifting focus to financial market stability over price stability.
In 2018, Bank Indonesia (BI) unleashed a flurry of rate hikes at the height of the emerging market currency rout, citing the need to establish financial market stability as they looked to steady the Indonesian Rupiah’s fall. Governor Warjiyo hiked a total of 6 times in 2018, beginning in May, to bring BI’s 7-day reverse repurchase rate to 6.0% by November with the last rate hike catching some market players by surprise. BI had maintained that raising rates aggressively and acting in a “pre-emptive” manner was done in order to maintain the stability of the economy and financial system by keeping financial assets attractive to foreign funds. The ability to keep the IDR stable is in line with the overall government move to keep the current account from ballooning.
(source: The Jakarta Post)