Perry Warjiyo, the head of Indonesia’s central bank, said on Wednesday that interest rates need to be changed quickly to control inflation, which is close to its highest level in seven years.
But Warjiyo said that if energy subsidies were available next year, Bank Indonesia (BI) would be able to slow the rise of interest rates.
“Interest rate policy will be front-loaded, preventive, and forward-looking,” he said at an annual meeting of bankers, government officials, and the central bank, Bank Indonesia. “This will be done in a measured way to bring down inflation expectations, which are still high” (BI).
Related: Indonesia’s 2023 GDP growth may decelerate to 4.4%, according to the central bank.
To stop inflation from getting out of hand, BI has raised interest rates by a total of 175 basis points this year, raised the amount of reserves banks need to keep on hand, and sold some bonds. Consumer prices were 5.71 percent higher in October than they were a year earlier. The annual inflation rate was a little lower than it was in September when it was 5.95%, which was the highest since 2015.
The governor said that to keep prices in check next year, it would be important for the central bank and the government to keep their policies in sync. “In 2023, there will be a subsidy for energy,” Warjiyo said, “so that inflation can be controlled and the BI policy rate increase can be more measured.”
Indonesia gives energy subsidies to households every year, but this year, when the budget for them went up to 208.9 trillion rupiahs ($13.28 billion) from 140.4 trillion rupiahs in 2021, they were especially important in keeping consumer prices from going up.
In 2023, they will be kept at a level of 211.98 trillion rupiahs, which is a bit higher than they are now.
Still expecting a lot of inflation, Warjiyo repeated what the BI had said before: that the central bank would get core inflation to its target range of 2% to 4% in the first half of 2023.
He thought that inflation would be between 1.5% and 3.5% in 2024.
Warjiyo said that other tools used by the central bank would be used to keep economic growth steady, which is expected to be between 4.5% and 5.3% next year and between 4.7% and 5.5% in 2024.
At the same meeting, President Joko Widodo said that the slowdown in the world economy could cause exports to go down in 2023. He also said that food and energy supplies could be interrupted, and it might be harder to get people to invest.
Widodo said, “We need to be careful about how we get food and energy.” “We have to be careful to keep household consumption at the same level so we can reach our goal for economic growth.”
The president also said that it was important to stick to the country’s plan to get more value out of its metal resources, such as nickel, tin, copper, and bauxite.
Related: The U.S., Japan, and their partners spent $20 billion to wean Indonesia off coal.
($1 = 15,735 rupiah).
