No: 15/ 9 /DKom
In the Board of Governors' Meeting convened on June 13th, 2013, Bank Indonesia decided to increase the BI rate by 25 basis points (bps) to 6.00%, while maintaining the deposit facility and lending facility rates at 4.25% and 6.75%, respectively. The policy was part of Bank Indonesia’s policy mix to response pre-emptively to rising inflation expectations and to maintain macroeconomic stability and financial system stability amid increasing uncertainty in global financial markets. Bank Indonesia continues to stabilize the rupiah exchange rate in line with its economic fundamentals and maintains adequate liquidity in the foreign exchange market. Bank Indonesia will continue to strengthen its monetary operation by enhancing their monetary instruments and financial market deepening, both in rupiah and foreign exchange. In addition, macroprudential policies are being prepared to prevent excessive risks in certain sectors. Policy coordination with the Government will also be strengthened by focussing on the efforts to minimize inflationary pressure and to maintain macroeconomic stability as well as financial system stability.
Indonesia’s economic growth in the Q2-2013 is projected to be biased downward to the lower bound of earlier forecast range of 5.9%-6.1% amid the slowdown in the global economy. The continuing crisis in Europe and a slowdown in China's economy potentially lead to lower the global economic growth. These conditions restrained the growth of exports and investment, especially non-construction investment. The source of Indonesia economic growth is primarily driven by continous strong household consumption and investment in construction.
On the external side, Indonesia's balance of payments (BOP) in the Q2-2013 is expected to improve. This improvement is supported by a considerable surplus in the capital and financial account, despite a deficit in the Q1-2013. Large surplus in the capital and financial account is supported by capital inflow, both in the forms of foreign direct and portfolio investments, in line with the positive perception on Indonesia's economic fundamentals and prospects. In the meantime, in accordance to its seasonal pattern, current account deficits in the Q2-2013 is expected to be higher than that in Q1-2013. Export performance is still subdued with weak external demand and declining global commodity prices, while imports including non-oil import continue to increase. International reserves at the end of May 2013 reached USD105.1 billion, equivalent to 5.8 months of imports and government’s external debt services, above the adequacy level of international standard.
Rupiah depreciation pressure increased in May 2013. On point to point basis, Rupiah depreciated by 0.74% (mtm) to Rp9.795 per U.S. dollar or on average depreciated by 0.36% (mtm) to Rp9.758. Pressure on Rupiah was associated with reposition of financial assets from emerging markets in line with the possibility of monetary policy adjusment by the Fed and negative sentiment toward domestic fiscal and current account deficits. Pressure on exchange rates also occured in most Asian currencies. Bank Indonesia continues to maintain the stability of Rupiah exchange rates in line with its economic fundamentals and provides adequate liquidity in the foreign exchange market.
Consumer Price Index (CPI) in May 2013 recorded a deflation in the midst of rising inflation expectation. CPI in May 2013 was recorded at -0.03% (mtm) or 5.47% (yoy) driven by volatile food deflation due to improvement of food supply. Core inflation also stayed at a low level (3.99%, yoy), in line with declining global commodity prices, stable exchange rate and adequate supply-side response. However, Bank Indonesia observes rising inflation expectation in anticipating Government policy on fuel subsidy. Administered prices are rising, triggered by second-phase of electricity tariff hike and distruption on the supply of LPG. In addition to enhancing its policy mix, Bank Indonesia will strengthen policy coordination with the Government to address rising inflation expectation by mantaining adequate supply of food staples and mitigating secondary effect of the plan adjustment in the fuel price.
The financial system stability and banking intermediation function were properly maintained. A solid banking industry performance is reflected in the high capital adequacy ratio (CAR) at 18.6%, which is well above the minimum capital requirement of 8% and low ratio of non-performing loans (NPL) gross at 1.96% in April 2013. Meanwhile, credit growth slowed down in April 2013 reaching 21.9% (yoy) in line with decelerating domestic economy. Working capital and investment credits grew quite high at 23.0% (yoy) and 23.7% (yoy), while consumer credit grew 18.8% (yoy). Bank Indonesia envisages credit growth rate is consistent with economic growth. However, Bank Indonesia observes continously high credit growth in certain sectors, particularly in the property sector. Going forward, Bank Indonesia believes that the financial stability will be maintained with banking intermediary function at moderate level in line with decelerating Indonesia’s economic performance.
A complete report of the June 2013 Board of Governors’ Meeting, presenting macroeconomic developments and monetary policy will be published in the Monetary Policy Review (MPR). This publication is accessible through Bank Indonesia’s website.
Jakarta, June, 13th 2013