KEBIJAKAN INFLATION TARGETING: ANTISIPASI KRISIS NILAI TUKAR

Abstract

This paper examines workability of inflation targeting policy after one year and half of its application in Indonesia, based on a method of descriptive analysis using macro-prudential indicators. In addition, non-parametric approach to earlier warning system of monitoring Rupiah stability against the US Dollar is also employed as a comparison. These two macro-prudential and non-paramet­ric approaches may predict the probability of weakening the Indonesian currency against USD. The results show unsatisfaction of the inflation targeting policy as a stabilizing instrument to control both inflation and rupiah movement against USD. This happens due to unsatisfaction of some prerequisites for con­ducting the policy, such as remaining weaknesses of financial institutions as indicated by the weakness of government regulation and control, significant off-shore loan or foreign debt and risky sudden stops from capital inflows (external domination).