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

Despite rising global inflationary pressures in most countries due to soaring global food and energy prices and supply chain disruptions, domestic inflation remains under control, mainly driven by supply-side inflation underpinned by higher Producer Price Index (PPI) inflation that has been above Consumer Price Index (CPI) inflation since 2020. Domestically, we are still on a recovery path with robust economic performance and continuing series of trade balance surplus. Externally, the global economic volatility has not subdued, bringing bleak prospects for the global economy. Consequently, many central banks had already moved toward a more “hawkish” stance by raising their benchmark rates and reducing asset purchases to curb elevated domestic inflation, including the Fed, which recently raised its FFR by 75bps. This phenomenon triggers a flight to quality and depreciation in EM countries. Rupiah has been depreciated to around Rp14,800.  Considering domestic and external circumstances, BI should remain behind the curve for the time being by keeping its policy rate at 3.50% while maintaining accommodative macroprudential measures to support economic growth.

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