Indonesia experienced deflation of 0,09% (yoy) in February 2025, below Bank Indonesia's target range of 1,5%-3,5%, mainly due to electricity tariff adjustments. Core inflation remained stable, indicating that the decline was not driven by weakening demand. Inflationary pressures are expected to increase in the coming months as demand increases during the fasting month of Ramadan and electricity subsidies end. Meanwhile, the Federal Reserve is expected to keep the Fed Funds Rate unchanged at 4,25%-4,50% at its March meeting as inflation in the United States remains above target despite signs of moderation. Rising trade uncertainties under President Trump, including escalating tariff disputes with the European Union and North American trading partners, could maintain inflationary pressures and weigh on business sentiment. Although inflation is currently below target, it is expected to return to Bank Indonesia's target range in the coming months. At the same time, external risks from global financial market volatility and US trade policy remain high. Taking these factors into account, Bank Indonesia needs to maintain its benchmark interest rate at 5,75% to ensure the stability of the Rupiah and maintain the resilience of the financial market.
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