JAKARTA: Indonesia's annual inflation eased more than expected in July to stand at 2.13%, its lowest since February 2022 and in the bottom half of the central bank's target range of 1.5% to 3.5%, data from the statistics bureau showed on Thursday.
A Reuters poll of economists had expected July headline inflation of 2.40%, down from June's rate of 2.51%.
Core inflation, which strips out government-controlled prices and volatile food prices, edged up to 1.95% in July, from 1.90% the previous month. The poll had forecast 1.90%.
Inflation has kept within the central bank's target range since the middle of last year, but Bank Indonesia (BI) has held back from easing monetary policy as it focused on keeping the rupiah steady amid global financial market uncertainties.
The consumer price index in July fell 0.18% on a monthly basis, with prices of shallots, chillis, and chicken contributing the most to the decline. An increase of 0.10% was predicted by economists in the poll.
Economists expect the room for a rate cut by BI this year will hinge on rupiah movement, with pressure on the currency seen persisting.
"The rupiah is still quite under pressure and we are entering a (government) transition period amidst the potential rise in the current account deficit," said Hosianna Situmorang, an economist with Bank Danamon.
She expected that BI had room to cut by 25 basis points in the last quarter of 2024.
DBS Bank economist Radhika Rao said BI's next move depends on the strength of the U.S. dollar and the timing of a rate cut by the U.S. Federal Reserve.
"The central bank will likely weigh easing inflation on one hand and need for financial market stability on the other," she said, while forecasting BI to stand pat for the rest of 2024.
The rupiah strengthened as much as 0.3% to 16,205 a dollar on Thursday, its strongest since a week ago.
BI, which has said it would assess the possibility of reducing borrowing costs in the fourth quarter, held its key benchmark interest rate at 6.25% at its July meeting.
The central bank's next policy meeting is set for August 20 and 21.