Second, monetary policy must be implemented on a forward-looking basis, responding to future developments in inflation. On the operational level, Bank Indonesia uses the BI Rate as policy rate to respond to the future trend in inflation. In formulating monetary policy, the Taylor-type rule is used as a benchmark.
Thus in essence, interest rates used as monetary policy instruments are adjusted in such manner so as to respond to deviations in the inflation gap and output gap. Obviously, rules like these are not to be applied mechanically.