In the Board of Governors' Meeting convened on September 13 2012, Bank Indonesia decided to hold the BI rate steady at 5.75%. The current policy rate is considered consistent with inflation forecast, which is expected to remain low and contained within its target range of 4.5%±1% in 2012 and 2013. Bank Indonesia sees that recent developments in the external balance have pointed toward improved current account deficit in Q3-2012, as expected earlier. However, Bank Indonesia remains vigilant on some risks, mainly worsening global economic growth, that may put pressure on the current account balance. Going forward, Bank Indonesia will continue to assess the effect of some policies that has been taken and will take further policy measures if neccessary. Bank Indonesia will also continue to strengthen coordination with the Government in managing domestic demand and improving current account deficit, so that it remains supportive to the effort to maintain macroeconomic stability and sustainable economic growth.
Board of Governors sees Indonesia’s economy in the Q3-2012 remains in line with economic capacity. Solid economic growth in Q3-2012 is mainly underpinned by buoyant consumption and investment. Sanguine growth in private consumption is supported by consumer’s confidence on the prospect of Indonesia’s economy, as well as contained inflation. The pace of investment also remains strong, reflecting business confidence on the economic outlook, strong consumption, and supportive investment financing, both from the banking system and Foreign Direct Investment (FDI). In addition, exports is also expected to advance modestly in line with better prospect in some of Indonesia’s main trading partner, although risks from global economic slowdown will remain a source of concern.
Balance of Payment in the Q3-2012 is expected to improve, although some risks still call for caution. Current account deficit is expected to be lower than that in Q2-2012, in line with earlier forecast. This was indicated by improvement in the trade balance in July 2012. On the other hand, rising surplus in the capital and financial account, driven mainly by FDI, is expected to balance the deficit in the current account. This condition had pointed towards foreign investor’s confidence on Indonesia’s economic prospect. Going forward, Indonesia’s Balance of Payment is expected to improve on account of expectation on better global economy and exports commodity prices, as well as support from effective policy responses. At the end of August 2012, international reserves reached USD109 billion, or equivalent to 5.9 months of imports and government’s external debt services.
Pressure on Rupiah continued in August 2012, albeit with less intensity. On point-to-point basis, Rupiah depreciated by 0.94% (mtm) to Rp9,535 per USD, or on average depreciated by 0.63% (mtm) to Rp9,493 per USD. Pressure on Rupiah was associated with tepid global economic recovery and uncertainty in the global financial market. In addition, strong imports growth amid weaker exports performace also affected supply-demand condition of foreign exchange. In that regard, Bank Indonesia will continue to monitor condition in the foreign exchange market to facilitate exchange rate adjustment towards the rate consistent with its fundamental.
Inflation remained benign, although went up, triggered by seasonal factor (Idul Fitri) and pressures on food prices. CPI inflation in August 2012 was recorded at 0.95% (mtm) or on an annual basis was recorded at 4.58% (yoy). Rising inflation in August was driven by higher prices in some food commodities, triggered by seasonal factor (Idul Fitri), volatility in the global food prices, and lack of adequate supply. Those factors accounted for higher core inflation in August 2012, albeit remained relatively low at 4.16% (yoy). Pressure on core inflation is expected to be temporary, while from fundamental aspect, core inflation remained in check. Going forward, inflation is expected to remain contained and stay within its target range of 4.5% ± 1% in 2012 and 2013.
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 of 8%, and gross non-performing loan (NPL) below 5%. Meanwhile, banking intermediary also continues to improve, reflected by credit growth in July 2012 that reached 25.2% (yoy). Investment credit recorded a high growth of 29.6% (yoy), and is expected to boost Indonesia’s economic capacity. Meanwhile, working capital credit and consumption credit grew by 27.3% (yoy) and 18.9% (yoy), respectively.
Going forward, Board of Governors will continue to attain external balance in a gradual manner and remain focus on containing inflation. In this regard, Bank Indonesia will continue to strengthen the existing monetary and macroprudential policy mix, including measures to manage domestic demand. BI rate policy response is continued to be directed to control fundamental inflationary pressure, in line with macroeconomic outlook. In addition, coordination with the government to reduce pressure on external balance will also be strengthened.
A complete report of the September 2012 Board of Governors’ Meeting, presenting macroeconomic developments and monetary policy will be published in the Monetary Policy Report (MPR). This publication is accessible through Bank Indonesia’s website.
Jakarta, 13rd September 2012
Head of Office of the Governor
Dody Budi Waluyo