Indonesia’s Monetary Policy in Controlling Inflation and Maintaining Stability

Abstract

Monetary Policy is a central bank’s primary instrument in maintaining currency stability, controlling Inflation, and creating conditions that support sustainable economic growth. In Indonesia, Bank Indonesia applies the Inflation Targeting Framework (ITF), which emphasizes price stability by utilizing the policy Interest Rate, open market operations, and Macroprudential instruments. Global developments, such as exchange rate volatility and changes in international Interest Rates, present significant challenges that influence the effectiveness of domestic policy implementation. This study employs a literature review method to analyze the role, dynamics, and adaptation of Indonesia’s Monetary Policy in responding to external pressures and maintaining Financial Stability. The findings reveal that policy flexibility, central bank credibility, the integration of Sharia-based instruments, and the development of Central Bank Digital Currency (CBDC) are crucial elements in strengthening the monetary foundation. Therefore, Indonesia’s Monetary Policy is not merely technical in nature but also strategic in addressing global challenges, while simultaneously supporting Financial Inclusion and long-term economic sustainability.