In the Board of Governors' Meeting convened on March 4th, 2010, Bank Indonesia decided to keep the BI Rate at 6.5%. This decision was taken after careful deliberation with the BI Rate at this level regarded consistent with achievement of the 2010 and 2011 inflation target set at 5%±1% and providing conducive conditions for the economic recovery process, financial stability and banking intermediation.
The Board of Governors believes that domestic economic recovery is forging ahead on a more vigorous trend than predicted at the beginning of the year. While private consumption continues to rise, exports have embarked on positive growth in keeping with the improving outlook for world economy recovery. Exports are up not only for mining and agricultural commodities, but have begun to improve for manufactured products both to Asian countries and the United States. This has resulted in faster than expected growth in manufacturing and trade.
This improvement in external sector performance is also reflected in Indonesia's balance of payments, marked by a substantial current account surplus. Capital inflows are flowing at a brisk pace, bolstered by the strength of international investor confidence in the improving condition of Indonesia's economic fundamentals. In response to these developments, international reserves reached USD69.7 billion at the end of February 2010, a level equivalent to 5.7 months of imports and servicing of official debt.
Concerning prices, inflationary pressure eased in February 2010 in line with the drop in inflationary pressure from volatile foods (led by rice), minimum inflation from administered prices and modest inflation expectations. Inflation in February 2010 was recorded at 0.30% (mtm), or in annual terms at 3.81% (yoy). The subdued level of inflation is also reflected in the drop in core inflation from 4.43% (yoy) in January 2001 to 3.88% (yoy) in February 2010. As a result, the Board of Governors is confident that no significant inflationary pressures will emerge at least during the first half of 2010, with inflation for 2010 overall expected within the targeted range at 5%±1%.
Within the financial sector, banking system stability remains firm. Renewed acceleration in credit expansion is forecasted for 2010 and is reflected in the business plans developed by banks. This is consistent with the growing confidence of economic actors in the improving outlook for the economy. At the micro level, the banking industry reports stable conditions reflected in the high capital adequacy ratio (CAR) and non-performing loans (NPLs) kept below 5%. Looking forward, Bank Indonesia will keep monitoring conditions and work for sustained efficiency improvements within the banking system to pave the way for more optimum operation of the banking intermediation function.
A complete report on the deliberations of the Board of Governors’ Meeting for March 2010, presenting macroeconomic and monetary policy developments, will appear in the Monetary Policy Review (MPR) published on the Bank Indonesia website.
Jakarta, 4 March 2010
Office of the Governor