Today, following a comprehensive evaluation of the economic and financial situation in Indonesia and worldwide, Bank Indonesia decided to lower the BI Rate 25 bps to 7.5%.
The world economy continues to be daunted with heightened uncertainty, despite the recent positive sentiment over the G20 agreement that has reinvigorated capital markets and financial markets around the globe.
Bank Indonesia predicts that economic growth in Indonesia during 2009 will come within the range of 3%-4%. Despite some slowing, this growth rate is nevertheless quite strong when compared to growth prospects in other nations. The vigour of the domestic economy will also depend to a great extent on the operation of the fiscal stimulus.
Inflationary pressure is steadily declining. The drop in inflationary pressure is explained primarily by the ongoing effects of the cut in fuel prices, predicted increases in food crop production and improving expectations of inflation. Pressure from volatile food prices is also low, with food production maintained at adequate levels. Taken together, inflation in 2009 is forecasted to reach the lower limit of the 5%-7% range.
The balance of payments in Q1/2009 outperformed earlier forecasts. Export volume of mainstay commodities, such as palm oil and copper, maintained a positive trend. Manufactured products, however, experienced decline in keeping with weakening global demand. In Q1/2009, the balance of payments charted an estimated USD3.5 billion surplus. At end-Q1/2009, international reserves were recorded at 54.8 billion US dollars, equivalent to 5.9 months of imports and servicing of official foreign debt.
Conditions in the national banking system remain sound. The capital adequacy ratio, like before, is strong at 17.7% (February 2009) with non-performing loans (NPLs) at relatively subdued levels (NPLs Gross at 4.3%, NPLs Net at 1.6% in February 2009). Banking liquidity, including liquidity flows on the interbank market, have steadily improved with easing of the market segmentation and growth in depositor funds. Credit expansion was still modest in Q1/2009, but is expected to gather momentum in the second quarter. This area will be a focus for more intensive synchronisation between fiscal and bank financing resources in order to expedite the financing of economic stimulus projects.
Bank Indonesia will consistently monitor developments in economic and financial conditions and stands ready to take the necessary measures to reinforce the domestic economy and safeguard economic and financial system stability.
A complete account of the deliberations of the April 2009 Board of Governors’ Meeting, presenting developments in monetary aggregates, inflation and the exchange rate for Q1/2009, will be published in the Monetary Policy Report (MPR).
Jakarta, 3 April 2009
Dyah N.K. Makhijani