Bank Indonesia (BI), which raised its BI rate by 25 basis points at an extraordinary meeting on Nov. 18 in response to President Joko Widodo's sharp reduction in government fuel subsidies, confirmed that it expects inflation to return to its target of 4.0 percent, plus/minus one percentage point, by end-2015.
BI has welcomed the more than 30 percent rise in subsidized gasoline and diesel prices as it will help reduce Indonesia's budget and current account deficits.
Indonesia's headline inflation rate jumped to 6.23 percent in November from 4.83 percent as administered prices escalated in line with the subsidized fuel price, land freight and electricity rates. Food inflation also rose due to higher chili prices.
"In contrast, core inflation was relatively well managed," BI said, noting core inflation rose to 4.21 percent in November from 4.02 percent.
BI said Indonesia's economic growth is forecast to continue decelerating in the fourth quarter due to weak government spending and lower household consumption due to higher inflation. But growth is expected to rebound in the first quarter of 2015 when consumption bounces back as government spending is expected to rise.
Growth in 2014 is projected in the lower end of the 5.1-5.5 percent forecast range and then rise to 5.4-5.8 percent in 2015, the BI said, confirming its previous forecast. Earlier this week, BI forecast 2014 growth of 5.1 percent.
Indonesia's rupiah currency has been depreciating against the U.S. dollar since July, as many other currencies, in light of the U.S. Federal Reserve's unwinding of its asset purchases.
BI said the rupiah had depreciated by an average of 0.21 percent in November - in line with nearly all global currencies - but aded that pressure was negated by optimism over the government's reform policy and "compared to the currencies of other countries, the level of rupiah depreciation has been relatively low."
BI added that it would "tirelessly maintain exchange rate stability in line with its fundamental value."
On Monday the central bank told Reuters that it had carried out "measured intervention" in foreign exchange markets after the rupiah fell to its lowest level against the dollar since 1998.
Today the rupiah fell further, hitting 12,412 to the U.S dollar from 12,348 on Monday, down 2 percent since the beginning of the year.
Bank Indonesia issued the following statement: