The first Board of Governors' Meeting convened by Bank Indonesia in 2010 has decided to hold the BI Rate at 6.5%. This decision was taken after concluding that the present level of the BI Rate is consistent with achievement of the 2010 inflation target, set at 5%±1%. In the balance of risk, the Board of Governors sees little likelihood of renewed inflationary pressure, at least during the first half of 2010. The BI Rate is also seen as conducive to efforts to boost economic recovery, maintain financial system stability and promote the banking intermediation function.
The Board of Governors is confident of further improvement in domestic economic conditions. In preliminary figures for 2009, the domestic economy charted fairly vigorous growth at 4.3%, despite lingering impact from the global economic turmoil. While underpinned by strengthening domestic demand, economic growth has also been bolstered by optimism and expectations for more robust recovery in the global economy, particularly during the second half of the past year, as well as accommodative responses in fiscal and monetary policies. The financial sector reforms instituted during the past several years have also contributed towards the improved resilience of the banking system to external shocks. Looking forward, a brighter outlook is predicted for the Indonesian economy, especially if accompanied by micro structural improvements within the economy.
The Indonesian economy has demonstrated considerable resilience accompanied by reduced inflationary pressure. Inflation in 2009 was recorded at 2.78%, well below the Bank Indonesia inflation target set at 4.5%±1%. The low inflation in 2009 was consistent with moderate rate of economic growth, appreciation in the rupiah, declining world commodity prices and cuts in domestic fuel prices. The positive developments in inflation and the exchange rate have shored up the expectations of economic actors concerning macroeconomic stability while lowering risks and providing greater certainty in the real sector and financial sector. Given the recovery in economic activity in 2010, inflation is predicted to mount slightly, while remaining with the 5%±1% range.
International reserves at end-December 2009 were recorded at USD 66.1 billion, equivalent to 6.6 months of imports and servicing of official foreign debt. Exports were up on the back of rising commodity prices and the global economic recovery, while imports contracted more rapidly than expected. At end-2010, international reserves are forecasted to reach USD 76.0 billion, equivalent to 6.4 months of imports and servicing of official foreign debt.
In the financial sector, banking system stability remains solid. Credit expansion came below forecasted levels in 2009, but is projected to gather momentum in 2010 to reach 17%-20% as confidence in the economic outlook is increasing. Based on preliminary data in December 2009, bank loan disbursements were recorded at about Rp 138 trillion, representing year-on-year growth at about 10.6%. At the micro level, the banking industry is in stable condition as reflected in the hefty capital adequacy ratio (CAR) at 17% in November 2009 and comfortably safe level of non-performing loans (NPLs) growth at below 5%.
Looking forward, monetary policy will focus on safeguarding macroeconomic stability as reflected in low inflation while factoring in efforts to boost economic recovery. In this regard, Bank Indonesia will pursue a series of policy actions to boost the effectiveness of monetary policy transmission, safeguard the stability of the rupiah and mitigate structural problems in inflation in collaboration with the government. In the financial sector, Bank Indonesia will also implement policies for financial market deepening and strengthening of the banking industry. These policies will be presented in more complete scope and detail at the annual Bankers Dinner on 15 January 2010.
A full report on the deliberations of the Board of Governors’ Meeting in January 2010, presenting macroeconomic developments the monetary policy, is available in the Monetary Policy Review (MPR) on the Bank Indonesia website.
Jakarta, 6 January 2010
Directorate of Strategic Planning
and Public Relations
Difi A. Johansyah
Head of Bureau