BI Board of Governor's Meeting, September 2023

Indonesia’s inflation remained stable and aligned with the BI’s target range. August’s trends in core inflation, administered prices, and the volatile food group underscore the ongoing efforts to preserve price stability amid diverse challenges, most notably the El Nino phenomenon—which is expected to peak in August until September—as well as Russia’s suspension of Black Sea Grain Initiatives. The economy also grew stronger than expected in the second quarter of this year, thanks to robust domestic demand. Despite the capital outflows from Indonesia’s financial market as the Fed raised interest rate again at the July FOMC, Indonesia maintained a higher trade surplus in August 2023 compared to its figure in July 2023. Rupiah is also recorded as one of the best performing EMs currencies. Therefore, foreign exchange adequacy should be higher and help stabilize the exchange rate without the urge for BI to adjust the policy rate. All in all, we see that BI should hold its policy rate at the current level of 5.75% while monitoring Rupiah stability and maintaining domestic prices.