Core Inflation Lower Than BI's Target, Interest Rates On Hold Again, Mr. Perry?

JAKARTA - Bank Indonesia (BI) stated that the achievement of core inflation in July 2022, which was 2.86 percent year on year (yoy), was still lower than previously estimated expectations.

BI Governor Perry Warjiyo said that his party had made a prediction that core inflation last month was 2.99 percent.

"Core inflation, which reflects the strength of supply and demand, is still quite low, even lower than Bank Indonesia's forecast," he said in a press conference quoted on Tuesday, August 2.

According to Perry, this condition certainly brings its own considerations for the monetary authority in setting the benchmark interest rate policy.

"Please remember that the interest rate policy is to pay attention to the main factor of core inflation, which is indeed still low this month," he stressed.

Perry added that the high inflation of the consumer price index (CPI) reaching 4.94 yoy in July 2022 did not necessarily make the central bank raise the BI rate.

"The high CPI inflation is due to the increase in food prices and not because of core inflation," he said.

As previously reported by VOI, in the last meeting of the Board of Governors of Bank Indonesia in mid-July, it was determined that the benchmark interest rate would not move from the level of 3.50 percent. This figure has persisted since 2020 and is a response to reduce pressure due to the COVID-19 pandemic.

In the monetary authority's explanation, it was revealed that the decision to maintain the BI rate was based on efforts to support national economic recovery. The reason is that the increase in the benchmark interest rate will certainly spread to the banking credit rate, which makes the business world have more burdens in terms of the cost of funds or the cost of funds.