Indonesia’s central bank has trimmed its inflation target this year as domestic demand remains subdued amid rupiah appreciation against USD, Perry Warjiyo, the bank’s deputy governor, said on October 21.
Perry Warjiyo disclosed that the lender expects consumer price index (CPI) at 3-3.1 percent this year, lower than its initial estimate of 3.2 percent.
"The pressure from domestic demand is still weak. Strong rupiah appreciation against the greenback causes imported-inflation low," he said. Rupiah has gained around 6 percent per one USD this year and was traded at 13,020 on October 21.
Relatively low global prices of commodities, including Indonesia's main exports, also contribute to the weakening inflation, Warjiyo added.
According to the bank’s survey, the consumer confidence index dropped to 110 in September from 113.3 in August, showing a slight fall in consumer optimistic views and expectation of economic condition.
The Bank Indonesia (BI) also trimmed its inflation forecast to 3.5 percent from the initial projection of 3.6-3.7 percent, said Warjjiyo.
Extreme weather and implementation of the electricity tariff increase plan next year are expected to contribute to increasing the consumer price index in 2017, according to Handri Adwilaga, assistant director at department of economy and monetary at the central bank.
The BI has cut its basic interest rate for six times this year to support growth. On October 20, it cut its 7-day-reverse-repo rate 25 basis points to 4.75 percent.
Earlier, the government expects the national economy to grow 5.2 percent this year and 5.1 percent next year.