Indonesia inflation is likely to remain high for the remainder of the year. But since the spike is entirely due to government's recent decision to scrap fuel subsidies, BI is unlikely to be too concerned.
Meanwhile, the fact that foreign exchange reserves have been increasing recently suggests policymakers are not too concerned by the weakness of the rupiah. More of a worry is the weakness of the economy, with growth last year slowing to its weakest pace since 2009.
Capital Economics notes in a report on Monday:
- Having surprised markets by unexpectedly cutting interest rates at its meeting last month, Bank Indonesia's (BI) meeting today looks like being a close call. On balance, we think rates will be cut again.
