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The Fed's hawkish tone: Will Bank Indonesia follow suit?
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Bank Indonesia Governor Perry Warjiyo answers questions from journalists following the central bank’s monthly monetary policy meeting in Jakarta on May 25, 2023. (Bank Indonesia YouTube channel/Screenshot)
T
he year 2023 continues to be full of uncertainty, particularly concerning the trajectory of global inflation and monetary policy rates. The global economy remains in a state of ambiguity amid the forceful tightening of monetary measures, prompted by the significant rise in inflation following the reopening of economies after the COVID-19 pandemic.
Major central banks have indicated their intention to persist with their present stance, favoring a policy of higher-for-longer interest rates in an effort to rein in persistently elevated inflation levels that have stubbornly exceeded the desired target.
Despite halting the increases in the Federal Funds Rate (FFR) during the June meeting of the Federal Open Market Committee (FOMC), the United States Federal Reserve has indicated that two additional hikes could still occur above 5.25 percent if inflationary pressures fail to abate.
The inflation rate in the US has gradually declined from its peak, dropping from 9.1 percent in June 2022 to 4.0 percent in May 2023. However, it continues to persist above the targeted inflation rate of 2 percent.
In its June meeting, the European Central Bank (ECB) made the decision to further raise its main refinancing operation rate to 4 percent, the highest level since the 2008 Global Economic Crisis, despite the European bloc entering a technical recession in the first quarter of 2023.
The ECB also revised its inflation forecast for this year and expressed its intention to continue raising the rate in the July 2023 meeting. The inflation rate in the eurozone has steadily declined from its peak, dropping from 10.6 percent in October 2022 to 6.1 percent in May.
Nevertheless, it remains significantly higher than the ECB's target of 2 percent.
