MONETARY POLICY STATEMENT

The Board of Governors view that, so far, the performance of domestic economy continues to strengthen amid the increasing concern on the prospect of global economy. The economic growth in Q3/2011 is forecasted to reach 6.6%, bolstered by exports, consumption, and investment. Exports are predicted to keep recording high growth in line with high world trade volume and global commodity prices. Nevertheless, going forward, the slowdown of growth in Euro area and US economies will affect the Indonesian export growth. On the other hand, consumption remains strong in line with consumers» optimism and the prospect of increase in Government expenditure. Meanwhile, investment is also increasing, supported by the developments of infrastructure projects and Government policies in boosting investment. By economic sector, the growth is projected to be led by trade, hotel & restaurant sector, transportation & communication sector, and manufacturing sector.

Indonesia's balance of payments in Q3/2011 is forecasted to remain posting a surplus albeit lower than the surplus in Q2/2011. Imports are predicted to continue accelerating due to increasing domestic economic activities, and put higher pressures on current account balance. Nevertheless, the pressures on current account can be compensated by a surplus in capital and financial account due to the continuing large capital inflows, although the inflows experienced temporary pressures emanating from the developments in global financial markets. In line with the development in the balance of payments, international reserves at the end of August, 2011 reached USD 124.6 billion, or equivalent to 7.1 months of imports and external debt services of the Government.

The rupiah exchange rate continue to appreciate albeit at moderate level. In August 2011, the Rupiah appreciated in average by 0.05% to Rp 8,525 per USD with lower volatility, although experienced temporary pressures due to global sentiment triggered by uncertainty of the US and Euro area economic prospects. The strengthening of Rupiah is bolstered by solid fundamental of domestic economy and attractive yield of Rupiah assets. Bank Indonesia is continuously monitoring the developments of Rupiah and ensures the adequacy of Rupiah and foreign exchange liquidity needed to maintain the stability of domestic markets.

Inflationary pressure has been under control. The CPI inflation in August 2011 is recorded at 0.93% (mtm) or 4.79% (yoy). Considering the development going forward, CPI inflation toward the end of 2011 is estimated to be below earlier forecasted. Inflationary pressures in August emanating from core inflation were mainly attributed to higher international commodity prices, particularly gold, and higher seasonal domestic commodity prices such as education costs and airplane fare. Meanwhile, inflation of volatile food prices was under control although domestic demand was higher during Eid holidays. This development is supported by sufficient supply of foods. On the other hand, administered prices experienced only moderate inflation due to the absence of Government policy on the prices of strategic commodities. The outlook of volatile food inflation and administered prices inflation towards the end of 2011 tends to be lower due to the improvement of food supply, including from imports, and oil prices that are inclined to be lower. The outlook of volatile food inflation and administered prices inflation is predicted to rein in inflationary pressures for overall 2011.

Banking stability was well maintained with a steady improvement in banking intermediation. The developments of external sector that affected domestic financial markets, although temporarily, indicate that an open economy requires vigilance as well as anticipative and coordinative policy measures. So far, the stability of banking industry is well maintained, as reflected by capital adequacy ratio (CAR) above the 8% minimum level and non-performing loans (NPLs) gross managed at a comfortably safe level below 5%. Meanwhile, credit disbursement reached at 24.2% (yoy) growth in August 2011, mostly to finance productive economic activities. Bank Indonesia will continue to monitor the credit disbursements to certain sector that are tend to be consumptive. Bank Indonesia will sustain efforts to optimize the intermediation function of the banking sector in bolstering national economic expansion while continuously maintaining the stability of the overall banking system.