Headline inflation is gradually subsiding with steady core inflation that indicates strong and manageable domestic demand. Externally, the less aggressive monetary tightening from the Fed and attractive yield spread have accommodated capital inflows to Indonesia. As a result, Rupiah is appreciating to the strongest level reaching IDR14,670 in early May supported by the rush upsurge in capital flows following the announcement of higher-than-expected Indonesia’s Q1-2023 economic growth of 5.03% (y.o.y). We view BI should hold its policy rate at 5.75% this month while planning to set the accommodative monetary policy to enhance external resilience amid potential global slowdown this year.
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