MACROECONOMIC ANALYSIS SERIES: BI Board of Governor Meeting, March 2023

The inflation figure moved in reverse direction as it increased to 5.47% (y.o.y), after a downward pattern since September 2022. This mainly contributed by the combination of supply disruptions due to the occurrence of flood during the harvest season and the low base effect that played a role. From the external side, the expectation of another aggressive rate hike by the US has pushed the fund to leave Indonesia with capital outflow recorded at USD938 million since mid-February 2023. However, the recent tragedy of SVB may force the Fed to be less aggressive in tightening its monetary policy in the near future. The push to delay monetary tightening by the US shall create a momentum of flow of funds to enter the emerging markets, including Indonesia. On the other hand, domestic currency has finally stabilized after a series of depreciation with Rupiah now standing around IDR15,367.  Considering those factors, we view that BI should hold its policy rate at 5.75% this  month while continuing to apply macroprudential measures to support the growth momentum.

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