No rise yet in the interest rate
As in many other countries in the world, the Indonesian economy has seen inflation creep higher. A number of factors have played significantly, especially the surge of prices in a number of key commodities such as cooking oil and non-subsidized gasoline, as well as agricultural commodities that were affected by Russian-Ukrainian War. Year-over-year inflation has currently reached 4.35%, which is above the Central Bank’s target inflation corridor.
In fighting inflation in the United States, the Federal Reserve has already increased the Federal Funds rate a number of times, but so far, inflation is still rising. A similar situation is seen in the European Union, as well as in the United Kingdom, where rising prices have been addressed by increasing the benchmark interest rate of the Central Bank. In the case of Indonesia, at its latest meeting of the Council of the Governors of the Central Bank, the decision differed from market expectation. In this case, the market expected the benchmark rate to rise. Instead, the Central Bank issued an alternative policy of releasing government debt from its asset portfolio in order to absorb domestic liquidity. At the meeting, the benchmark rate remained the same, at 3.5%.
The Central Board of Statistics reported that the trade balance in June 2022 registered a very large surplus, although less than the record surplus achieved in April 2022. Exports in June were $26,092.1 million while imports were $21,003.4 million. The trade surplus for June 2022 stood at $5,088.7 million, above the surplus reached in May. Cumulative exports from January to June reached $141,068.3 million, a record for Indonesian exports for the first half of the year. Cumulative imports for the same period were $116,182.2 million, bringing the cumulative surplus for the first semester of 2022 to $24,886.1 million.
The Central Board of Statistics also reported the Consumer Price Index for the month of June, which resulted in inflation of 0.61%. This monthly rate of inflation can be considered high and led to an annual rate of inflation at 4.35%, a level above the upper band of the Central Bank's target inflation corridor. Given that level of year-over-year inflation, and also the weakening rupiah, Bank Indonesia was expected to raise its benchmark interest rate. Instead, as mentioned, Bank Indonesia increased the amount of government debt to be unloaded to soak up liquidity and decided to keep the benchmark interest rate constant at 3.50% at its Monetary Policy Meeting on July 21, 2022.
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