Indonesia manages inflation with high commodity prices

Indonesia manages inflation with high commodity prices

The central bank of Indonesia kept its policy rate unchanged, keeping an eye on global inflation and the consequences of the Ukrainian conflict.

According to the Indonesian Finance Minister Sri Mulyani Indrawati, As a result of Russia’s invasion of Ukraine, consumer prices are on the rise and relations between the world’s biggest economies are deteriorating, which may slow Indonesia’s recovery and undo decades of globalization that made the country a “clear winner”.

She added that record prices for coal and key minerals, including nickel, help fill Indonesia’s coffers just enough, for now, providing it with the resources it needs to fight inflation through limited subsidies and financial assistance.

On Thursday, the Bank of Indonesia kept the seven-day reserve repurchase rate at 3.5% which was predicted by all 29 economists in a survey. Since February 2021, the rate was at a record low.

Governor Perry Warjiyo said that the central bank will look through the current round of food and oil prices. He pointed out that In response to supply-driven pressures, fiscal interventions, such as subsidies and price controls, are more effective.

He said, “I need to emphasize that monetary policy responds to a fundamental increase in inflation which is seen in core inflation and we don’t respond directly to the increase in volatile food and administered price inflation”.