Commerzbank’s Dr. Henry Hao and Moses Lim note that Indonesia March CPI slowed to 3.5% year-on-year, back within Bank Indonesia’s (BI) target range, but warns that Middle East conflict and higher freight costs pose upside inflation risks. Despite softer inflation, BI is expected to keep its policy rate at 4.75% and has removed its easing bias as USD/IDR trades above 17,000 amid weaker sentiment.

Inflation normalises but risks persist

"Looking ahead, inflation should continue to normalise in the coming months."

"However, a prolonged conflict in the Middle East poses upside risks through higher freight costs, supply chain disruptions, and precautionary inventory build-up, even as fuel subsidies remain in place."

"On monetary policy, BI is expected to keep the policy rate unchanged at 4.75% at the 22 April meeting."

"At its March meeting, BI turned more cautious, removing its easing bias."

"This shift reflects rising IDR volatility, with USD/IDR rising above the 17,000 level last week."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)