Headline inflation in January 2025 was recorded at 0,76% (yoy), its lowest level since 2000 and fell below BI's target range. This was largely influenced by electricity tariff discounts of up to 50% for certain household groups. Last month, the Fed, in line with market expectations, held its benchmark interest rate and Bank Indonesia unexpectedly lowered its benchmark interest rate even though the Rupiah was under pressure. Furthermore, the newly inaugurated President Trump also launched various policy directions, including tightening migration flows that have the potential to tighten the US labor market, corporate tax cuts, and various import tariffs, all of which have the potential to increase US inflation and trigger global uncertainty. The combination of these three factors has played a major role in the movement of capital flows in Indonesia and the Rupiah exchange rate in recent weeks. Going forward, the start of the Ramadan period is expected to trigger inflationary pressures. Then, the Fed's decreasing aggressiveness in easing its monetary policy and the continued development of President Trump's policy direction have the potential to influence investors, although the direction is still relatively difficult to predict. Considering these various aspects and the still fluctuating Rupiah condition, we are of the view that Bank Indonesia needs to maintain its benchmark interest rate at 5,75% at the Board of Governors Meeting this February.
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