Indonesia's inflation is believed to fall below the central bank's target. Economists also see this as a positive surprise for policymakers who have seen this outcome. And the results of these policymakers will also be seen only by August, but this is still a good thing.

Indonesia's headline inflation is believed to hit the 2% to 4% range, at least in May or June. These are economists' predictions and projections after the April consumer price data release on May 2nd. Bank Indonesia will also keep the key rate steady at 5.75% soon.

Consumer prices rose 4.33% last month, the slowest pace experienced by the Indonesian economy in nearly a year. This volatile economy eased to a 13-month low, but this still requires reinforcing expectations for the central bank to leave rates unchanged.

Annual inflation also goes lower than the 4.97% pace. This is slightly below the 4.39 percent predicted by the Reuters poll. Every month, the Consumer Price Index rose 0.33%, compared to a forecast of 0.37 percent and data of a 0.18 percent increase a month earlier.

Bank Indonesia Explains the Reasons Why Inflation is Steady to 4.33%, below Forecast

Indonesia's central bank, at its April meeting, announced that it would keep its benchmark interest rate unchanged. This is a decision that has stuck for three months straight. Meanwhile, headline inflation is predicted to return to its target with mild inflation.

"Concerns over inflation appear to be rapidly receding. This is guided by strong efforts by the government to manage food supply and private sector agility," said Bank Danamon economist Irman Faiz.

These economists also said that the current performance of Indonesia's internal and external balance made Bank Indonesia does not change the policy rate. For now, the Indonesian central bank will maintain the policy rate at 5.75 percent.

Meanwhile, Bank Permata economist Josua Pardede also predicts that the central bank will hold rates for the rest of the year. It is also believed that the inflation headline will be around 3.5 percent by year-end.

So he said that authorities should watch for other external impacts. The executive director of the communications department of Bank Indonesia, Erwin Haryono, said that the sloping inflation could not be separated from Bank Indonesia's monetary policy.

He considered that the government's price grouping supplemented Bank Indonesia's pre-emptive policy response. So, Bank Indonesia is pretty well-developed in making Indonesia’s inflation drop further.

Bank Indonesia Still Says Monetary Policy Needs to Consider Financial Stability

Bank Indonesia stated that the policy to hold the benchmark interest rate at the 7-Day Reserve Repo Rate had a positive impact. This decision was made because Bank Indonesia remained consistent with its stance and continued to reduce inflation occasionally.

Previously, at the Board of Governors of Bank Indonesia meeting for March 2023, Bank Indonesia decided to hold interest rates fixed at 5.75 percent. In other words, Bank Indonesia considers the benchmark interest rate sufficient and provides faster results.

Now, Indonesia's monetary tightening axis has begun to shift. Six months of raising interest rates, and Bank Indonesia has given enough pause three times in a row.

The impact of rising interest rates in the United States is also one of the things that Bank Indonesia and Indonesian economists are concerned about.

Therefore, Perry Warjiyo mentioned that monetary authorities need to consider financial stability's impact when later formulating monetary policy. Regular meetings need to be held so that the financial system stability can be agreed upon in the current global banking system.

Recorded inflation for the Indonesian economy has fallen below the predictions of the Indonesian bank. This is proof that the policies adopted by the central bank have been well formulated. However, Bank Indonesia still needs to consider several other things.