No. 12/ 5 /PSHM/Humas
On 4 February 2009, the Board of Governors' Meeting at Bank Indonesia decided to keep the BI Rate unchanged at 6.5%. This decision was taken on the basis that the BI Rate at this level remains consistent with achievement of the 2010 inflation target, set at 5%±1%, and is supportive of measures to strengthen the economic recovery process, safeguard the financial stability and promote banking intermediation.
The Board of Governors is confident of steady improvement in domestic economic conditions as previously forecasted, in tandem with the growing momentum of global economic recovery. The latest forecasts point to more vigorous global economic growth in 2010 and 2011. Global economic recovery will continue to be driven by Asia, led by China where the economy remains buoyant despite short-lived negative sentiment on financial markets prompted by policy tightening in that nation. However, economic recovery in advanced economies is progressing at a more moderate pace. In Indonesia, economic growth is predicted to mount higher on the back of vigorous growth in consumption fuelled by improvement in purchasing power and consumer confidence levels. Exports are on an upward trend in keeping with the strengthening recovery in the global economy. Similarly, the balance of payments is predicted to register an increased surplus, bolstered by a hefty surplus in the current account. A substantial volume of capital inflows pouring into the domestic economy is driven by the strength of domestic economic fundamentals and upgrading of Indonesia's sovereign rating. In response to these developments, international reserves at end-January 2010 reached USD69.6 billion, equivalent to 5.9 months of imports and servicing of official foreign debt.
Concerning prices, inflation in January 2010 registered 0.84% (mtm) or 3.72% (yoy). Inflationary pressure was fuelled mainly by temporary price hikes in the volatile foods category, particularly for rice. Nevertheless, these prices are forecasted to ease in view of the expected harvest in coming months. Core inflation edged upwards only slightly, primarily due to the rising trend in international commodity prices, while increased demand was matched by adequate supply-side response. Looking forward, the Board of Governors is confident that inflationary pressure will remain muted at least during the first half of 2010. For 2010 as a whole, inflation is firmly on course with the target set at 5%±1%.
In the financial sector, banking system stability remains strong. Despite having dropped below expected levels in 2009, credit expansion in 2010 is forecasted to rebound to 17%-20% in line with the rising confidence of economic actors in the outlook for the economy. For December 2009, bank lending registered growth at 10% (yoy), with rupiah credit expanding by 16.5% in contrast to the 17.4% contraction in foreign currency lending brought on by slumping activity in imports and exports. At the micro level, the banking industry is in stable condition as reflected in the 17.4% capital adequacy ratio in December 2009 and gross non-performing loans under 5%. Bank Indonesia will continue to monitor developments and pursue further improvements in banking efficiency for optimum performance in the banking intermediation function.
A complete report on the deliberations of the January 2010 Board of Governors’ Meeting, presenting macroeconomic developments and monetary policy, will be published in the Monetary Policy Review (MPR) on the Bank Indonesia website.
Jakarta, 4 February 2010
Office of the Governor
Difi A. Johansyah
Head of Bureau