MNI STATE OF PLAY: BI Sees "Manageable" Inflation Ahead

Indonesia’s central bank said it expects headline inflation will remain “manageable” and within its target range this year, as it left its policy rates unchanged.

Bank Indonesia’s Board of Governors voted to keep the second-day reverse repo rate unchanged at 3.5% on Tuesday, and held the overnight deposit and lending facility rates at 2.75% and 4.25%. Rates have been unchanged since September 2020.

BI Governor Perry Warjiyo said that while the economy is recovering, the Bank was downgrading its 2022 growth forecast to between 4.5% and 5.3%, down from the previous estimate of 4.7% to 5.5%. Indonesia’s economy grew by 3.7% in 2021.

Consumer price inflation rose to a two-year high of 2.6% in March driven by higher food prices. Core inflation rose from 2.0% to 2.4%. Bank Indonesia has a target range of between 2% and 4%,.

BI expects the rupiah to remain stable, underpinned by a lower current account deficit.

While policy has remained broadly accommodative, BI has moved to tighten liquidity for commercial banks, with an incremental increase in the rupiah reserve requirement, beginning with a 1.5 percentage point increase to 5% from March and another 1.5 percentage points by September.