Monetary Policy Framework - Bank Sentral Republik Indonesia
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July 14, 2020

Monetary Policy Framework in Indonesia

To implement monetary policy, Bank Indonesia has opted for a working framework known as the Inflation Targeting Framework (ITF). This framework was formally adopted ​in July 2005, and replaces the previous monetary policy using base money as the monetary policy target.
What is the ITF?   |   Why the ITF?    |    How is the ITF a​pplied?

Under the ITF framework, Bank Indonesia announces future inflation targets for specific periods.   During each period, Bank Indonesia will evaluate whether the inflation projection is on track with the adopted target.  This projection employs a number of models and various information depicting future inflation conditions.  If the inflation projection is no longer compatible with the target, Bank Indonesia then responds with the instruments at its disposal.  For example, if the inflation projection overshoots the target, Bank Indonesia will adopt a tight bias monetary policy.  Bank Indonesia issues regular explanations to the public on the assessment of inflation conditions, the future outlook and decisions taken. If the inflation target is not reached, an explanation must be provided to the public and measures taken to put inflation back on course for its target.

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