No. 19/ 22 /DKom
The BI Board of Governors agreed on 15th and 16th March 2017 to hold the BI 7-day (Reverse) Repo Rate (BI-7 day RR Rate) at 4.75%, while maintaining the Deposit Facility (DF) and Lending Facility (LF) rates at 4.00% and 5.50% respectively, effective 17th March 2017. The decision is consistent with Bank Indonesia’s efforts to maintain macroeconomic and financial system stability amidst growing global uncertainty. Bank Indonesia continues to monitor and remains vigilant of various short term risks, both global and domestic. Global risks include rising global inflation, US economic and trade policy direction and Fed Fund Rate hike effects, as well as geopolitical risks from Europe. Domestically, the impact of administered prices (AP) on inflation still needs to be monitored. Therefore, Bank Indonesia constantly optimises its monetary, macroprudential and payment system policy mix to preserve macroeconomic and financial system stability. Furthermore, Bank Indonesia will continue to strengthen coordination with the Government, focusing on controlling inflation within the target corridor as well as accelerating structural reform programs to support sustainable economic growth.
Economic growth is expected to continue improving, despite a number of risks that need to be observed. The global economy continued to post positive growth on the back of the US and emerging markets economic gain as well as rising commodity prices. Consumption and investment continues to buoy the US economy, coupled with improvements in terms of employment and incomes. Moreover, international commodity prices, including oil and Indonesia’s export commodity prices, continue to rise. On the other hand, a number of global risks demand vigilance, including the increase of inflation in advanced economies that can trigger monetary tightening in said countries. Meanwhile, further FFR hikes can potentially boost USD strenghtening and elevating cost of borrowing. The Brexit issue, along with geopolitical risks in several European countries due to growing populist sentiment and debt settlement in Greece, could exacerbate global uncertainty.
Indonesia’s economy is predicted to remain strong in the first quarter of 2017, compared to the previous quarter, driven stronger investment, robust consumption and improving export performance. Non-building investment is predicted to gain traction, reflected by an uptick in sales of heavy equipment and cement. Household consumption is expected to continue increasing as indicated by a stable retail growth and positive consumer expectations. Meanwhile, government’s contribution towards consumption and investment tend to improve. Externally, export performance is predicted to improve as commodity prices increase. Consequently, the Indonesian economy is projected to grow in the 5.0-5.4% (yoy) range in 2017.
Indonesia’s trade balance recorded a surplus in February 2017, primarily supported by the non-oil and gas trade surplus. Indonesia’s trade balance stood at USD1.32 billion in February 2017, reducing from USD1.43 billion the month earlier but increasing from February 2016 surplus of USD1.14 billion. The surplus, among others, was due to increase in exports of palm, coal, rubber, and chemicals. On the other hand, non-resident capital recorded a net inflow of USD2.2billion (ytd) in February 2017. Consequently, the position of reserve assets stood at USD119.9 billion at the end of February, equivalent to 8.9 months of imports or 8.5 months of imports and servicing government external debt, which is well above the international standard of around three months.
The rupiah continued to appreciate in February 2017 in line with maintained macroeconomic stability and despite a backdrop of growing global uncertainty. On average, the rupiah appreciated by 0.17% (mtm) to Rp13,338/USD in the reporting period, supported by forex sales by exporter corporations along with improving exports, and a net inflow of foreign capital to purchase tradeable government securities (SBN) along with positive investor perception towards the domestic economy. Moving forward, Bank Indonesia will remain vigilant of emerging risks, including the US economic policy and the impact of FFR hikes as well as political uncertainty in several European countries. Therefore, Bank Indonesia will continue to implement the stabilisation measures necessary to ensure the rupiah remains consistent with the currency’s fundamental value, while maintaining market mechanisms.
Inflation was controlled in February 2017. CPI inflation was recorded at 0.23% (mtm) in February 2017, down from 0.97% (mtm) the month earlier, stemming from administered prices (AP) and core inflation, while volatile foods (VF) experienced deflation. Looking forward, Bank Indonesia will strengthen policy coordination with the Government to control inflation in response to several risks, including further adjustments to administered prices (AP) as the Government continues to reform energy subsidies as well as inflationary pressures on volatile foods. With that strategy, inflation is projected to remain within the target corridor of 4±1%.
The financial system remained stable, supported by solid banking industry resilience and maintained financial market stability. In January 2017, the Capital Adequacy Ratio (CAR) stood at 23.0% and the liquidity ratio at 21.8%, while non-performing loans (NPL) were recorded at 3.1% (gross) or 1.4% (net). Bank Indonesia has eased monetary and macroprudential policy, which successfully fed through to lower deposit rate by 128 bps (yoy) and lending rate by 80 bps (yoy). Accordingly, interest rates on working capital loans were lowered most significantly (112 bps, yoy), followed by investment loans (95 bps, yoy) and consumer loans (30 bps, yoy). Credit growth in January 2017 was recorded at 8.3% (yoy), accelerating from 7.9% (yoy) one month ago. Nonetheless, corporate consolidation and limited credit demand continues to squeeze the expansion of new loans. Deposit growth, however, was reported to accelerate from 9.6% (yoy) to 10.0% (yoy) in January 2017. Meanwhile, economic financing through the capital market, including IPO and rights issues, corporate bonds and medium-term notes (MTN), continue to increase. Credit and deposit growth are predicted to improve in 2017 in the range of 10-12% and 9-11% respectively, in line with increased economic activity and a looser monetary and macroprudential policy stance.
Jakarta, 16 March 2017