Hike rates

Indonesian central bank in no rush to raise rates as inflation hits five-year high

  • CPI +4.35% y/y, vs. +4.17% in a poll
  • Core inflation +2.63% y/y, vs. +2.72% in a poll
  • Rupee movements affect c.bank’s position more than inflation

JAKARTA, July 1 (Reuters) – Indonesia’s central bank is in no rush to raise interest rates, its governor said on Friday, even as June consumer prices rose at the fastest pace in five years, beating forecasts and exceeding its target range in a strong upside environment. in food prices.

June’s annual inflation rate accelerated to 4.35%, the highest since June 2017 and above the 4.17% forecast in a Reuters poll. Last month’s figure was 3.55%.

Bank Indonesia’s (BI) target range is 2% to 4%.

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However, the annual core inflation rate, which excludes government-controlled and volatile prices, came in below market expectations at 2.63% in June. The poll predicted a rate of 2.72%, while the rate for May was 2.58%.

BI Governor Perry Warjiyo said the dataset showed low underlying inflation and low government-controlled price inflation, due to large subsidies keeping some energy prices unchanged.

“Underlying inflation is relatively low, so it gives us some leeway not to be in a rush to raise interest rates,” he told a parliamentary hearing, reiterating a commitment to keep interest rates at an all-time high until BI sees signs of fundamentals. price pressures.

BI, one of the world’s least hawkish central banks, said it would focus more on the underlying inflation rate, instead of the headline figure, to determine the pace of policy normalization post- pandemic.

The data showed that the rise in inflation was mainly due to higher prices for chilli, shallots, eggs and transport fares.

Margo Yuwono, head of Indonesia’s statistics agency, said high world prices for wheat, sugar and soybeans had so far had a limited impact on domestic inflation. Although flour and noodle makers have seen rising costs, they haven’t passed it on to consumers, he said.

Bank Permata economist Josua Pardede said any change in BI policy would likely be driven more by movements in the rupee, which has been under pressure since June due to capital outflows linked to the Reserve’s monetary tightening. US Federal.

“Comments heading into the July meeting will be scrutinized for signs of a shift in stance in light of narrowing US-ID rate differentials and (a) currency under pressure,” the statement said. DBS economist, Radhika Rao.

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Additional reporting by Bernadette Christina Munthe Editing by Ed Davies, Martin Petty

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