General inflation continued its upward trend since last May and reached 2,37% (yoy) in July 2025. The main contributors to the July inflation increase were supply disruptions in several food commodities and demand for gold jewelry. Externally, investors interpreted the latest US inflation and unemployment figures as signals of an imminent interest rate cut by the Fed. Consequently, Indonesia has experienced significant foreign capital inflows into the bond and stock markets in recent weeks, reaching USD 1,08 billion and driving the Rupiah to strengthen by 1,04% (month-to-month) in the past 30 days. However, the implementation of Trump's tariffs has the potential to trigger inflationary pressures in the coming months, and a rate cut by Bank Indonesia will exacerbate these inflationary pressures. Therefore, we believe Bank Indonesia needs to maintain its benchmark interest rate at 5,25% at the Board of Governors' Meeting in August 2025.
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