Indonesian Inflation Hits 3-Year Low, Creating Opportunity for Monetary Policy Easing
By Stefanno Sulaiman and Fransiska Nangoy
In a recent report, Indonesian prices rose at their slowest rate in almost three years in September. This has led to a decline in food-price inflation, providing the central bank with the opportunity to loosen monetary policy in order to stimulate economic growth.
Annual inflation stood at 1.84%, the lowest since November 2021, according to LSEG data. This figure is lower than the 2.12% recorded in August and the 2.00% median estimate from analysts in a Reuters poll. It also falls within Bank Indonesia's inflation target range of 1.5% to 3.5%.
Food prices, which are a key contributor to inflation, saw a slower growth rate of 2.57% compared to August's 3.39%. Core inflation, which excludes volatile food prices and government-controlled prices, increased to 2.09% from 2.03% as per the poll.
Maybank Indonesia economist Myrdal Gunarto noted that an abundant food supply and the government's efforts to maintain price stability for strategic commodities will provide room for Bank Indonesia to ease its monetary policy stance. It is predicted that BI will cut its policy interest rate to 5.25% by the end of the year, instead of the previously forecasted 5.75%.
This potential rate cut comes after BI reduced its rate for the first time in over three years last month, lowering it by 25 basis points to 6.00%. This move was made to support growth amidst sluggish inflation, just hours before a 50 basis point cut in the U.S.
Analysis:
The recent slowdown in inflation in Indonesia presents an opportunity for the central bank to implement monetary policy easing measures, which could stimulate economic growth. Lower food-price inflation and the government's focus on price stability for key commodities are contributing factors to this potential policy shift. If Bank Indonesia decides to cut its policy interest rate as predicted, it could have a positive impact on borrowing costs and overall economic activity in the country. Investors and consumers should monitor these developments closely as they could affect investment decisions and personal finances.
