In a statement Bank Indonesia said this policy decision is consistent with its stance to control inflation within its 2.0-4.0 percent year-on-year (y/y) target in full 2023, while at the same time strengthening the stability of the rupiah rate to curb imported inflation and mitigate the contagion effect of global financial market uncertainty.

There are three key matters that Bank Indonesia needs to keep a close eye on when formulating monetary policy:

(1) Policy decisions taken by the US Federal Reserve;
(2) The performance of the Indonesian rupiah; and
(3) The level of inflation in Indonesia.

Because inflation was discussed in the previous chapter in this report (with the main conclusion that there are no significant inflationary pressures on the horizon), we focus on US monetary policy and the Indonesian rupiah rate in this article.



US Monetary Policy

The US Federal Reserve decided to raise its benchmark interest rate after concluding its policy meeting on 26 July 2023. The rate was raised to the range of 5.25 – 5.50 percent, a 22-year high as it continues to combat high US inflation (at 3 percent y/y in June 2023). This decision, which was in line with market expectations, came after the Federal Reserve took a breather in June 2023.

It is unclear whether we can expect another Fed rate hike in September 2023 when the US central bank next meets. In American press Federal Reserve Chairman Jerome Powell was quoted saying “it is certainly possible that we would raise the funds rate again at the September 2023 meeting if the data warranted. [But] I would also say it is possible that we would choose to hold steady.”

Meanwhile, in early August 2023, US data showed the US added 187,000 jobs in July 2023, which is below economists' projections, and could be seen as another sign that the Fed’s tightening cycle is working. The average work week also shrank, which is an indication of easing labor demand in the US.

[...]

This is the introduction of the article. The full article can be accessed in our July 2023 report (an electronic report). This report can be ordered by sending an email to info@indonesia-investments.com or a message to +62.882.9875.1125 (including WhatsApp).

Take a glance inside the report here!

Price of this report:

Rp 99,000
USD $7.50
EUR €7.50

Discuss