Inflation and BI Rate in 2024? (Part-1)

By: Dr. Mohamad Ikhsan Modjo (Financial Economic Specialist’s BINUS International Program)

Ernest Hemingway, a renowned novelist and journalist from the United States, once wrote that inflation is another way to destroy a nation besides warfare. The reason is that inflation erodes purchasing power and impoverishes society. Inflation also results in a covert and invisible transfer of wealth from fixed-income people, who usually live in poverty and misery, to the government and the wealthy class.

All of these will eventually lead to doubt, uncertainty, and distrust. Consumers become hesitant between saving or consuming. Entrepreneurs become uncertain about investing and starting a business. Meanwhile, society becomes distrustful of the government or each other, which negatively affects the economy and the dynamics and social capital of a nation.

The latest data shows that national inflation is still relatively normal, at around 3.04 percent to date. The question now is, what are the prospects for 2024? Will inflation continue to be controlled, or on the contrary, will it increase drastically, threatening macro-stability, which is the foundation of the economic growth over the past two years?

Of course, this will greatly depend on how Bank Indonesia (BI)—and the government—anticipate various internal and external challenges the national economy faces. So far, BI seems quite confident and ensures that the inflation rate will continue to be maintained in the future, albeit the rate has been increased by 50 basis points to 6 throughout 2023. If there are no obstacles, it is almost certain that BI will do the same thing in 2024.

On the one hand, this decision is not unfounded. The increased pressure from the FED fund rate has caused the nation’s currency to be more volatile and pressured.