No. 14/ 7 /PSHM/Humas
In the Board of Governors' Meeting convened on 12 April 2012, Bank Indonesia decided to keep the BI rate unchanged at 5.75%. Board of Governors views that current BI rate is still consistent with inflationary pressures going forward emanating from economic fundamentals, which is expected to remain under controlled. Nevertheless, Bank Indonesia continues to be vigilant on the possibility of temporary inflationary pressures driven by Government fuel policy and stand ready to take necessary measures to anticipate it. In that regard, Bank Indonesia will continue to strengthen monetary operation and macroprudential policy and maintain consistency between interest rate policy and forecast on macroeconomic condition. By continuously strengthening monetary and macroprudential policy mix, as well as policy coordination with the government through national and regional inflation control teams, Bank Indonesia is confident that inflation in 2013 can be controlled towards the range of 4.5%±1%.
Board of Governors views that global economy is still oveshadowed with high uncertainty. Amid some indication on US economy recovery, economic recovery in Euro area still face a problem regarding on going crisis resolution as well as indication of slower economic growth in China and India. Those condition will have an impact on exports performance of emerging market countries, including Indonesia. Meanwhile, global inflation is still subdued and developed countries continue implementing accommodative policy despite more limited space. Nevertheless, the increase in global commodity prices, particularly oil, has increased inflation perssure that can lead to tight bias monetary policy in emerging market countries. Under condition of uncertainty in global economy and increasing commodity prices, capital flow volatility to emerging markets, including Indonesia, is expected to continue.
Board of Governors predicts that Indonesia’s economic growth will remain strong amid risk of global economic slowdown and possible Government policy in subsidized fuel prices. In Q2/2012 economic growth is forecasted to reach 6.4%, slightly lower than the forecast for growth in Q1/2012, which is 6.5%. Bank Indonesia forecasts that for 2012, Indonesian economy will grow by 6.3%-6.7% and pick up to 6.4%-6.8% in 2013. That high economic growth, amid global economic slowdown, is mainly supported by strong domestic demand with robust private consumption and an increasing role of investment. Balance of risks shows that economic growth tend to bias downward due to decelerating global growth and possible Government fuel policy, if no stimulus are given, particulary from the fiscal side. From the production side, all sectors are predicted to continue charting high growth, led by transportation and communication sector; trade, hotel and restaurant sector; and construction sector.
Indonesia’s Balance of Payments in 2012 is predicted to chart a smaller surplus compare to it was last year. The smaller surplus in Balance of Payment is mainly driven by higher current account deficit, as exports slows, along with global economic slowdown, amid increasing imports to support higher domestic economic activity and fuel consumption. On the other hand, capital and financial account is predicted to continue charting a large surplus, supported by foreign direct investment as well as portfolio investment. Meanwhile, international reserves at the end of March 2012 reached USD110.5 billion, or equivalent to 6.1 months of imports and external debt services of the government.
Rupiah exchange rate in Q1/2012 has weakened. Rupiah on point-to-point basis depreciated by 0.83% (qtq) to Rp9,144 per USD, or on average depreciated by 1.03% (qtq) to Rp9,066 per USD. The weakening of Rupiah is followed by higher volatility relative to its volatility in the previous quarter. The pressure on Rupiah is driven by, among others, portfolio adjustment by foreign investors due to global sentiment and increasing domestic inflation expectation. In addition, foreign exchange demand tends to increase as imports remain strong, particularly oil and gas imports for subsidized domestic fuel consumption. Nevertheless, the stability of Rupiah exchange rate is still well managed as Bank Indonesia undertakes measures to stabilize the Rupiah by intervening in the foreign exchange market and buying Government securities from the secondary market.
Inflation remains under controlled although there is a risk of higher inflationary pressures going forward. CPI inflation in Q1/2012 was recorded at 0.88% (qtq) or 3.97% (yoy), higher than the inflation in the previous quarter. Inflationary pressures were emanating, among others, from limited deflation of food prices although the harvest season has started. Meanwhile, administered prices inflation was relatively small as there was no change in government policy on the prices of strategic commodities. On the other hand, core inflation was also under control at a relatively low level, 4.25% (yoy). Going forward, Bank Indonesia will be vigilant on the risk of inflationary pressures emanating from the possibility of Government fuel policy.
Financial system stability is well-maintained with improving intermediation function to support economic financing. Banking industry shows solid performance, as indicated by secured level of capital in which capital adequacy ratio (CAR) is well above minimum level 8%, and gross non-performing loan (NPL) below 5%. Meanwhile, banking intermediary also continues to improve, reflected by credit growth in February 2012 that reached 24.2% (yoy). Investment credit recorded high growth, 33.2% (yoy), and it is expected to increase economic capacity. Meanwhile, working capital credit and consumption credit grew by 23.4% (yoy) and 19.6% (yoy), respectively.
Going forward, Board of Governors will continue to monitor closely the impact on possible government policy regarding energy as well as global economic slowdown, on Indonesian economy. If the policy related to subsidized fuel is taken by the Government, Bank Indonesia believes that the impact on the inflation will be temporary. However, Bank Indonesia will optimize various policies needed to minimize the temporary impacts of government energy policy on inflation and controlling inflationary pressure to move in line with fundamental condition to maintain inflation within the target. In this regard, Bank Indonesia will continue to strengthen the existing monetary and macroprudential policy mix. Interest rate policy response is continued to be directed to control for fundamental inflation pressure in such a way that it is in line with macroeconomic outlook. Meanwhile, to control for short-term inflation pressure, the policy is focused on strengthening monetary operation and managing excess liquidity. In addition, coordination with government will be strengthened, through national inflation control team (TPI) and regional inflation control team (TPID).
A complete result of the April 2012 Board of Governors’ Meeting, presenting macroeconomic developments, monetary policy, and the outlook in 2012-2013 will be published in the Monetary Policy Report (MPR).
Jakarta, 12 April 2012
Office of Governor
Dody Budi Waluyo
Head of Department