Indonesia's Inflation Is Predicted To Return To Below 4 Percent In Semester II 2023

JAKARTA - DBS Bank Senior Economist Radhika Rao estimates that Indonesia's inflation will return to below 4 percent on an annual basis in the second semester of 2023.

"For inflation, we estimate that inflation will return to below 4 percent in the second half of this year, meaning that it will return to the target in the second half of 2023," said Radhika in a discussion with the media in Jakarta, quoted from Antara, Wednesday, March 29.

She said inflation was starting to return to the government and Bank Indonesia's target of 3 percent plus minus 1 percent because global commodity prices had declined.

The reduction in the inflation rate is also expected to give Bank Indonesia room to hold the BI 7 Days Reverse Repo Rate at 5.75 percent until the end of the year.

"Bank Indonesia has been holding back the rate of increase in the benchmark rate since February 2023. We think they will continue to hold back the rate of increase in the benchmark rate until the end of 2023," she said.

In addition to controlled inflation, BI will hold its benchmark interest rate in line with the US central bank The Fed which is projected to only raise its benchmark interest rate once again by 25 basis points (bps) in May 2023.

The increase will make the Fed Fund Rate benchmark interest rate at the terminal rate level of 5.25 percent.

According to her, the decrease in the aggressiveness of the Fed was caused by the declining US inflation rate compared to the previous year, although inflation in the US was still quite high compared to 2018-2019 due to the high level of employment and wage increases.

"The development of the Fed's benchmark interest rate will also depend on pressure from the banking sector with new systemic risks which will make the Fed more skeptical of further increases in its benchmark interest rate," she said.