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BI unfazed by seven-year-high inflation in July
After the higher-than-expected inflation reading last month, the central bank has reaffirmed that it would only hike its key interest rate if there were significant signs of demand-induced inflation.
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BI Governor Perry Warjiyo speaks during the Economy and Monetary Police Perspectives event at the International Monetary Fund and World Bank annual meetings in Nusa Dua, Bali, on Oct. 14, 2018. (AFP/Sonny Tumbelaka)
B
ank Indonesia has signaled that it remains unmoved by the recent higher-than-expected inflation reading, reaffirming that it would only hike its key interest rate if there were significant signs of demand-induced inflation.
Statistics Indonesia reported on Monday that the consumer price index (CPI) was up an annual 4.94 percent in July, making a seven-year high and exceeding BI’s latest full-year target of 4.6 percent as well as the central bank’s July estimate of 4.89 percent.
BI said inflation in July was driven mostly by volatile food prices that saw an annual 11.47 percent increase due to high commodity prices and supply disruption, whereas core inflation, which directly reflected demand, increased at the slower pace of 2.86 percent, lower than the central bank’s estimate of 2.99 percent.
“Please remember that the interest rate is based on core inflation, which this July was still low. Our CPI is high because of volatile food,” BI Governor Perry Warjiyo told reporters during a quarterly financial system stability committee (KSSK) press briefing on Monday.
Read also: Inflation at seven-year high, exceeding BI’s revised outlook
Perry stressed that the central bank’s policy did not have to follow that of the United States Federal Reserve, which has hiked its key rate several times this year, possibly prompting higher capital outflow and increased pressure on the rupiah’s exchange value.
“It’s not automatic that, if another central bank hikes their interest rate, BI also increases its rate. Everything is up to the domestic situation,” Perry explained, pointing to core inflation as well as economic growth as his main considerations.
