Indonesia finance minister calls for cautious approach toward easing inflation

By Choonsik Yoo and Jihoon Lee

INCHEON, South Korea (Reuters) – Inflation is cooling rapidly in countries including Indonesia but policymakers should consider diverse factors driving the price changes after rapid rises last year, the country’s finance minister told Reuters on Wednesday.

Minister Sri Mulyani Indrawati also said in an interview that Southeast Asia’s largest economy was on a strong recovery path as the boost from China’s reopening and robust domestic sectors offset downside factors relating to the advanced economies.

Indonesia’s central bank kept its benchmark interest rates unchanged last month for a third straight meeting as inflation eased, joining a growing number of its global peers which had jacked up rates last year to cool surging prices.

But policymakers remain wary that price pressures could remain persistent — both Australia and Malaysia surprised markets with unexpected rate hikes this week.    

“We should look at especially what contributed to this headline inflation as compared to the core inflation because, especially for the monetary authority side, they are looking at both sides,” Indrawati said.

Indonesia’s consumer inflation eased to 4.33% on an annual basis in April from 4.97% in March, approaching the 2%-4% policy target band set for the country’s central bank.

She was speaking on the sidelines of the Asian Development Bank’s (ADB) annual meeting in South Korean city of Incheon.

On the issue of Indonesia’s much delayed plan to introduce a carbon tax, Indrawati refused to say how close a decision on the new timing is, while emphasising that more time is needed for smooth communication between diverse stakeholders.

Indonesia has delayed its plan to introduce the carbon tax from July last year, citing then adverse global economic conditions and the need for the authorities to prepare for its implementation.

“If the recovery is becoming more robust and stronger, then we will make the decision regarding the right timing to introduce this new instrument on climate change that is the carbon tax,” she said, without giving a clear time frame.

She added both the ADB and the China-backed Asia Infrastructure Investment Bank (AIIB) could play a role of complementing each other’s operations in helping the development of the region, instead of “a division of labour”.

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