EABER/SABER newsletter March 2015

Bank Indonesia (BI) surprised everyone when it eased monetary policy at its February meeting. Moving into line with global trends, it cut the policy interest rate by 25 basis points to 7.5 per cent, even though analysts had predicted no change. While the change is surprising, it has a sound rationale but is not without risk. Recent developments are supportive of a more benign inflation picture. BI follows a forward-looking inflation targeting policy regime. Headline inflation is declining more quickly than expected with the February rate at 6.3 per cent. It seems the feed through of the November fuel price hikes were largely one-off and the strong dollar has not shaped inflation.