MACROECONOMIC ANALYSIS SERIES. BI Board of Governor Meeting, March 2018

Expectation of faster interest rate hikes by Federal Reserves, with March rate hike deemed imminent by market participants, has initially led to portfolio capital outflow in the last month. However, market reactions to what basically is expectation of four rate hikes by Federal Reserves this year has somewhat tapered off, which shows market trust in macro fundamentals of Indonesia. Inflation also seems to have stabilized, albeit at very low level of around 3% for headline inflation and 2.5% for core inflation and expected to slightly inch higher due to consumptions related to 2019 General Election campaign spending. As risks for Rupiah at the moment comes mostly from exchange rate, Bank Indonesia may want to hold its policy rate for now and focus on defending Rupiah through direct intervention in forex market.

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