MACROECONOMIC ANALYSIS SERIES: BI Board of Governor Meeting, July 2022

Despite exceeding past BI’s target, the surge in prices in June 2022 is mainly cost-push, primarily driven by price of volatile commodities. On the other hand, core inflation stood at a rather safe rate under the BI’s target. Looking at the macroeconomic indicators, economic recovery appeared to be on track, indicated by the level of CCI, which was still reported in optimistic territory. The windfall from higher commodity prices also benefited trade performance, reflected by an immense surplus. The enduring risks from the external sector, however, continued to cast a shadow over the domestic market condition. A continuing strong performance of USD also added fuel to the heat of external pressure. The result was then quite obvious as evidenced by a substantial outflow and the depreciation of Rupiah. However, BI should not be in a rush to tighten its stance as it may delay economic growth. Therefore, we see that BI should continue to maintain its policy rate at 3.50% while closely observing the external dynamics.

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