Headline inflation continues to fall gradually with stable core inflation, indicating that domestic demand is strong and under control. From the external side, monetary tightening which is no longer aggressive from the Fed and the yield gap which remains attractive has caused capital to flow into Indonesia. As a result, the Rupiah appreciated to IDR 14.670 in early May supported by a surge in capital flows following the announcement of Indonesia's economic growth for the first quarter of 2023 which was higher than expected at 5,03% (yoy). We see that BI needs to maintain its policy interest rate at 5,75% month while planning an accommodative monetary policy to increase external resilience and encourage domestic price stability amidst a potential global economic slowdown this year.

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