Headline inflation spiked up to 2.75% (y.o.y) in February 2024 as the pressure from food prices were mounting due to the combination of supply-side and demand-side pressure. Increasing intensity of El-Nino disrupt the supply  adequacy of food commodities while Ramadhan period drove up demand for food commodities. Furthermore, the surprising rise of the US inflation triggered a sentiment that the Fed might have to wait longer than previously expected to cut down policy rate from its current 23-year high. This has partially caused capital outflow from Indonesian bond market. Despite the mounting pressure on Rupiah, Rupiah has been rather stable in the past few weeks. Thus, we view that BI should hold its policy rate at 6.00%.

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