The Central Bank of Indonesia raised its key interest rates from 0.25% to 3.75%. As elsewhere, the fight against inflation forces it to raise rates for the first time since 2018. Despite the measures adopted by Jakarta to help households and limit the surge in energy prices, inflation has continued to rise in recent months and reached 4.94% in July.
At this level, Indonesian inflation remains well below what we know in the West. But unlike many others, the Central Bank of Indonesia takes its inflation target very seriously (inflation between 2% and 4%). Fearing that the upper limit of 4% would be exceeded on what remains of the year as in 2023, it has taken action.
It is true that the economy is in good shape and offers considerable room for manoeuvre. In the second quarter, Indonesian growth reached 5.44%, supported by solid private demand and healthy foreign trade. Everything points to the fact that the economy is well positioned to cope with this slight increase in the price of credit.
The Indonesian Central Bank is decisive in its actions. It adopts a very orthodox monetary policy, further strengthening its credibility and earning investor confidence. It is not a surprise that the local rupiah has appreciated by about 9% against the euro since the beginning of the year. The high volatility experienced by some emerging bond markets has been less present.
While the Indonesian market remains buoyant for us, it is also more expensive than the generality of other emerging markets. We, therefore, limit the investment in the Jakarta stock exchange to the dynamic portfolio.