BI Have A Room To Reduce Agresivity Of The Assurance Of Interest Parts Along With The Decree Of Core Inflation

JAKARTA The decline in the latest inflation rate was positively welcomed by Bank Indonesia (BI). This was recorded when the central bank gave an official statement regarding the achievement of inflation based on the consumer price index (CPI) in November 2022 which was 5.42 percent year on year (yoy), lower than October with 5.71 percent.

The decline in IHK inflation was supported by the core inflation level which also decreased to 3.30 percent yoy from the previous 3.31 percent in October. Meanwhile, core inflation was recorded at 0.15 percent month to month (mtm) or slightly decreased compared to inflation the previous month of 0.16 percent mtm.

For information, BI uses the core inflation rate as one of the main bases in establishing the policy of the benchmark interest rate.

Controlled core inflation is mainly influenced by the continued impact of fuel price adjustments on limited core inflation and inflationary pressures in terms of not yet strong demand, said BI Communications Department Executive Director Erwin Haryono on Thursday, December 1.

Just so you know, in three consecutive months the monetary authority aggressively raised the benchmark interest rate by 50 basis points (BPS) to 5.25 percent as of November 2022. This was taken to balance the increase in core inflation which continued to creep up.

Although core inflation has fallen as of early December, Bank Indonesia's move to enlarge the BI rate will continue. This assumption is based on two factors.

First, the central bank assessed that inflation is still quite high from the IHK inflation control target at the normal level of 3 percent plus minus 1 percent.

Second, BI is still eager to lower inflation rates faster than the previous target. This is evidenced by an front-loaded, pre-emptive, and forward- looking monetary policy response so that inflation can slope in the first semester of 2023.

Furthermore, even though core inflation has decreased, it does not mean that Bank Indonesia will end the trend of increasing the BI rate. At least, the central bank has a little more room to reduce the aggressiveness of increasing the benchmark interest rate to 25 bps which will be announced in the middle of this month.