Macroeconomic Analysis Series: BI Board of Governor Meeting, October 2023

Indonesia’s inflation figure fell below 3% in September due to the high-base effect from the same period last year. However, the inflation trends underscore the ongoing efforts to preserve price stability amid diverse challenges, most notably the El Nino weather phenomenon, which is expected topeak in September. Indonesia also maintained a higher trade surplus in September 2023, which marks the 41st consecutive month of surplus. However, the dynamics in the US market regarding potential rate hikes in the upcoming months have translated into an outflow spree of capital from the Indonesian market in recent weeks, as noted in the selloff in stocks and bonds assets amounting to USD1.35 billion between midSeptember and mid-October. It is worth emphasizing that the pressures on the Rupiah are expected to persist for a while, which will likely pose challenges for the central bank in the coming months. In light of the pressures on the Rupiah and the necessity to uphold the interest rate differential with the Fed, we are in the view that BI shall maintain its policy rate at the existing level of 5.75% while continuing its macroprudential effort to stabilize any short-term pressure on price and exchange rate level.

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