No. 14/ 3 / PSHM/Humas
In the Board of Governors' Meeting convened on 9 February 2012, Bank Indonesia decided to decrease the BI rate by 25 bps to 5.75%. This decision was made as a further step to boost Indonesia’s economic growth amidst decreasing performance of the global economy, with the priority remains on achieving inflation target and exchange rate stability. With this BI rate decision, the lower and upper bounds of interest rate corridor of Bank Indonesia’s monetary operation becomes 3.75% for overnight deposit facility (deposit facility rate) and 6.75% for overnight lending facility (lending facility rate), respectively. Going forward, Bank Indonesia will continue to be vigilant on the risk of worsening global economy and the impacts of Government policy regarding energy, and will continue to strengthen monetary and macro-prudential policy mix, as well as coordination with the government. Board of Governors is confident that the implementation of countercyclical monetary and macro-prudential policy mix is crucial in managing the economy and keep inflation within its targets, that is, 4.5%±1% for 2012 and 2013.
Board of Governors monitor closely the decreasing global economic prospect in line with prolonged euro area crisis and slowing down in emerging market economies. The world economic growth in 2012 is predicted at 3.3%, lower than the previous forecast at 3.7%. The resolution of euro area crisis related to debt and fiscal deficit will still take time and contains uncertainty, while the US economy is still facing weak recovery. This condition leads to declining global trade and affects emerging market economies, including Indonesia. In line with the weakening global economic activity, non-energy global commodity prices are in decreasing trend, and accompanied by decreasing global inflationary pressures.
On the domestic side, Board of Governors view that Indonesian economy is still quite resilient, although with a tendency towards lower growth of global economic prospects. For Q1/2012, economic growth is predicted to reach 6.5% while for overall 2012 is predicted towards the lower bound of forecast at 6.3-6.7%. The source of growth is mainly from domestic demand, supported by strong private consumption and investment. Strong private consumption is supported by improving purchasing power and consumer confidence as inflation is under control. The increase in investment is supported by favorable investment climate and positive perception on the prospect of Indonesian economy. Meanwhile, export growth is predicted to slow down due to the decelerating global economy. Based on production sectors, this strong economic growth is led by manufacturing sector, transportation and communication sector, as well as trade, hotel and restaurant sector.
Indonesia’s Balance of Payments in Q1/2012 is predicted to record a surplus although with a tendency to be lower. Current account is predicted to be deficit in line with decreasing export while import is still relatively large. Balance of Payments surplus in Q1/2012 is expected to be supported by capital and financial account as FDI and portfolio capital inflows are predicted to increase. This is supported by the strong fundamentals of domestic economy amidst global economic uncertainty. In addition, the achievement of investment grade is predicted to strengthen positive sentiment on Indonesian economy. In line with that development, international reserves at the end of January 2012 reached USD112 billion, or equivalent to 6.2 months of imports and external debt services of the Government.
Rupiah exchange rate is quite stable although slightly depreciated. In January 2012, on average, Rupiah depreciated by 0.28% (yoy) to Rp9,060 per US dollar, but on point-to-point the Rupiah appreciated by 0.65% (yoy) to Rp8,990 per USD. The increase in foreign exchange demand for imports, particularly fuel, put pressure on Rupiah exchange rate. Nevertheless, such a pressure was offset by positive sentiment from the upgrade of Indonesia’s credit rating to investment grade. To maintain the stability of domestic markets, Bank Indonesia continues to monitor the developments of Rupiah and ensures the adequacy of Rupiah and foreign exchange liquidity.
Inflation continues in a decreasing trend. In January 2012, inflation was recorded at 3.65% (yoy), lower than inflation in the previous month at 3.79% (yoy). The decrease in inflation was driven by the decrease in food prices inflation in line with secured food supply. Meanwhile, core inflation was relatively stable as global commodity prices decreased and inflation expectation improved. On the other hand, administered prices inflation only increased slightly due to higher cigarette excise tax. Going forward, if there is no government policy to reduce fuel subsidy, inflation is predicted to continue decreasing. Bank Indonesia will be vigilant on the impacts of Government policy on energy that may increase pressure on inflation.
Financial system stability remains under control with improving banking intermediation. Banking industry has been more resilient, as indicated by secure level of capital with capital adequacy ratio (CAR) well above minimum level 8%, and gross non-performing loan (NPL) below 5%. Meanwhile, banking intermediation continues to improve, as reflected by credit growth in December 2011 that reached 24.5% (yoy), in which investment credit grew by 33.2%, working capital credit grew by 21.4% (yoy), and consumption credit grew by 24.1% (yoy).
Going forward, Board of Governors will continue to be vigilant on the impacts of global economic slowdown on Indonesian economy and the impacts of Government policy regarding energy. Bank Indonesia will continue to optimize the role of monetary policy in boosting economic capacity, maintaining financial market stability, and mitigating the impacts of global economic slowdown, while at the same time anchoring inflation expectation. For that purpose, Bank Indonesia will continue to strengthen the policy mix through interest rate response, exchange rate policy, macro-prudential policies for capital flows management, macro-prudential policies for liquidity management, and policy coordination with the government.
A complete result of the February 2012 Board of Governors’ Meeting, presenting macroeconomic developments and monetary policy, will be published in the Monetary Policy Report (MPR).
Jakarta, 9 February 2012
Public Relation Bureau
Difi A. Johansyah
Head of Bureau