Another rate hike

INDONESIA - Report 31 Oct 2022 by Cyrillus Harinowo

For the past several months, Indonesia's economy has been hit by rising inflation. The Central Board of Statistics reported early this month on the Consumers Price Index for the month of September 2022, which registered inflation of 1.17%, a relatively high monthly rate. Inflation was broad based: of the 90 cities surveyed, almost all experienced a rise in prices.

The rising prices have been in place for a number of months. Because of that, Bank Indonesia had taken action by raising interest rates for the previous two months, after monetary policy makers tried to resort to other policies in the previous months. Unfortunately, inflation continued to persist. As of September 2022, Y/Y inflation had already reached 5.95%, a level way above the target corridor of the Central Bank.

With that level of Y/Y inflation, and also a weakening rupiah, Bank Indonesia was once again expected to raise its benchmark interest rate. Bank Indonesia decided to raise the bench mark interest rate by 50 basis points to a level of 4.75% at the Monetary Policy Meeting of October 19-20, 2022. Commercial banks did not automatically follow the Central Bank’s lead, so the effect of the rate increase may take some time before its impact is fully evident.

The Central Board of Statistics also reported that the trade balance for September resulted in a very large surplus, although less than the surplus achieved in August. Exports for September were $24,801.3 million while imports were $19,808.1 million, for a trade surplus in September of $4,993.2 million, below the surplus reached in August 2022.

Cumulative exports between January to September reached $219,352.8 million, a record for Indonesia's exports for the first three quarters of the year. In fact, the export performance for the first nine months of this year almost reached the level of exports for full-year 2021, of $231.5 billion. We can expect that total exports for 2022 might approach $300 billion. In the meantime, cumulative imports for the same period reached $179,486.3 million, also a strong performance. The cumulative surplus for the first nine months of 2022 stood at $39,886.5 million, a record level so far.

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