MNI STATE OF PLAY: Indonesia CB Sees Risks To Benign Inflation

Indonesia’s central bank says rising inflation is the key to any tightening of monetary policy and that with domestic inflation benign the main risk comes from rising energy prices due to the Ukrainian conflict.

Bank Indonesia on Thursday left its benchmark seven-day repurchase rate unchanged at 3.5% as expected, with the bank maintaining its priority on financial stability, see: MNI STATE OF PLAY: Stable Indonesia Waits For Likely H2 Hike

Speaking after the decision, Governor Perry Warjiyo said that fiscal policy would be important in containing inflation with the Government providing subsidies for key fuels and insulating the economy from the inflationary pressure.

“I would like to stress that monetary policy responds to a fundamental rise in inflation,” Warjiyo said.

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Bank Indonesia sees inflation staying within its 2% to 4% target range this year, and February inflation was at the lower end of the range at 2.06%. The bank maintained its GDP forecast at between 4.7% and 5.5%.

The rupiah, which has been a cause for concern in the past, is also stable at around 14,340 against the USD, although further US hikes could have an impact later in the year.

Although BI is under no immediate pressure to increase rates it has already moved to tighten liquidity for commercial banks, with an incremental increase in the rupiah reserve requirement for commercial banks, beginning with a 1.5% increase to 5% from March and another 1.5% by September.