Indonesia’s inflation rises to 2.56% in October, fuelling talks of further rate hikes
[JAKARTA] Indonesia’s inflation rate inched up to 2.56 per cent in October – higher than September’s print of 2.28 per cent but lower than a Bloomberg consensus forecast of 2.6.
Core inflation eased to 1.98 per cent from 2 per cent a month earlier, in line with expectations. The October core inflation rate marks the lowest figure in 21 consecutive months.
The El Nino weather phenomenon has caused a drought in South-east Asia’s largest economy, triggering an increase in food prices, especially in the price of rice, said Pudji Ismartini, an official from the country’s statistics agency.
The price of rice rose 18 per cent year on year in October, to its highest in five years.
Inflation data is among the factors that Bank Indonesia (BI) will scrutinise at this month’s policy meeting. Indonesian policymakers face a policy dilemma as global uncertainties outweigh recent positive domestic data.
BI unexpectedly raised its benchmark interest rates by 25 basis points (bps) in the previous meeting to arrest the rupiah’s decline, amid tightening in the United States and higher imported inflation.
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BI’s inflation target is a range of 2 per cent to 4 per cent for this year. The target will be lowered to 1.5 per cent to 3.5 per cent next year.
With more uncertainty and volatility in global economic conditions and the financial markets, analysts expect BI to delay any rate cuts to early 2025 or even later.
“This higher-for-longer policy stance is likely to render the Indonesian economy to grow below expectations. We are expecting a 25-bp hike at this November meeting,” said Lee Su Ann, an economist of UOB.
Economists from Bahana Sekuritas Satria Sambijantoro and Drewya Cinantyan said a 50-bp rate hike would act as an insurance policy for the Indonesian economy against geopolitical risks and rising political uncertainty ahead of the 2024 elections, “which could also affect Indonesia’s portfolio flows outlook amid the balance-of-payments deficit”.
For too long, BI has swum against the global tightening tide by not hiking rates amid the higher-for-longer stance adopted by major central banks – causing Indonesia’s spread against global rates to be narrower than what many consider safe.
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