Indonesia

Indonesia moved from fixing its exchange rate (with some use of monetary instruments) through exchange rate management with a gradually more active and indirect monetary policy to loose but formal inflation targeting from 2006.

Years Targets and attainment Classification
1974-78 most forex transactions via central bank at narrow spreads set by central bank, but forex activity relatively unrestricted: on balance more fix than target; monetary policy relies on credit ceilings, and strongly affected by public sector budget deficit and external operations (especially those of state oil company Pertamina) augmented exchange rate fix AERF
1979-2005 after November 1978 devaluation exchange rate is managed with reference to trade-weighted basket; more exchange rate variation (in pursuit of competitiveness) after March 1983 devaluation against larger but still undisclosed basket, band widened 1995-96 then more or less managed float from August 1997 (Asian financial crisis); financial sector reforms June 1983 with end of credit ceilings, but authorities slow to create new indirect monetary policy instruments; fiscal dominance on occasions; from early 2000s some kind of informal inflation target loosely structured discretion LSD
2006-14 formal inflation target from July 2005, with switch to 1-month market interest rate in place of base money as intermediate target, then to overnight interest rate as policy rate June 2008; inflation targets hit six years out of nine (misses partly due to administered price rises, and some evidence of inflation expectations remaining anchored), but targeting is loose because of large swings of inflation in both directions, and converging because that was intention (though not consistently realised); weakness of interbank money market and hence of monetary transmission mechanism; continued concern with and more or less managed float of exchange rate; fiscal dominance largely controlled loose converging inflation targeting LCIT

Selected IMF references: RED 1976 pp20, 29-30, 43; RED July 1979 p55; RED 1981 Annex II; RED 1983 pp2, 51-6; RED 1986 pp52-74, 102-3; RED 1990 p56; SR 1997 pp5-6; SI 2002 ch.II; SR 2005 pp21-2, 27; SR 2008 pp15, 17, 23; SR 2009 p11; SI 2011 ch.II; SR 2013 pp6, 14-16, 21; SR 2015 pp16-18, 30.

Additional source: Bank Indonesia website, http://www.bi.go.id/en/moneter/inflasi/bi-dan-inflasi/Contents/Penetapan.aspx.

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