The BI Board of Governors Meeting agreed on 18^th and 19^th April 2022 to hold the BI 7-Day Reverse Repo Rate at 3.50%, while also maintaining the Deposit Facility (DF) rates at 2.75% and Lending Facility (LF) rates at 4.25%. The decision is consistent with the need to maintain exchange rate stability and control inflation, together with efforts to revive economic growth despite a build-up of external pressure, particularly the geopolitical tensions between Russia and Ukraine as well as sooner-than-expected monetary policy normalisation in advanced economies.  Bank Indonesia continues to optimise its policy mix strategy to maintain stability and safeguard economic recovery momentum through the following policy measures:

1. Strengthening exchange rate policy to maintain rupiah stability in line with market mechanisms and economic fundamentals.
2. Maintaining an accommodative macroprudential policy stance by holding: (i) the Countercyclical Capital Buffer (CCyB) at 0%, (ii) Macroprudential Intermediation Ratio (MIR) in the 84-94% range, (iii) Macroprudential Liquidity Buffer (MPLB) at 6% with 6% repo flexibility and the Sharia Macroprudential Liquidity Buffer at 4.5% with 4.5% repo flexibility.
3. Maintaining prime lending rate transparency in the banking industry with a focus on sources of operating income in the banking industry (Appendix).
4. Ensuring adequate availability of currency fit for circulation, maintaining seamless currency distribution and prime cash services, while preparing BI-FAST implementation during the holy fasting month of Ramadan and Eid-ul-Fitr 1443H.
5. Raising the maximum deposit limit for registered electronic money from Rp10 million to Rp20 million and the monthly transaction limit from Rp20 million to Rp40 million, effective from 1^st July 2022.
6. Strengthening international policy by expanding cooperation with other central banks and international organisations, promoting trade and investment in conjunction with the relevant institutions as well as ensuring the success of the six priority agendas in the Finance Track of Indonesia's G20 Presidency in 2022 in conjunction with the Ministry of Finance.

Bank Indonesia also remains committed to strengthening policy synergy with the Government and Financial System Stability Committee to control inflation, maintain monetary and financial system stability as well as revive lending to the corporate sector and other priority sectors to foster economic growth, stimulate exports and increase economic and financial inclusion.

The global economic recovery is expected to endure, yet at a slower pace than previously projected, accompanied by persistently elevated global financial market uncertainty.  Ongoing geopolitical tensions between Russia and Ukraine are impacting world trade, raising international commodity prices and exacerbating global financial market uncertainty despite a flattening of the Covid-19 curve.  Economic growth projections have been downgraded in several jurisdictions, including Europe, the United States, Japan, China and India.  Similarly, Bank Indonesia has revised its global economic growth projection for 2022 down to 3.5% from 4.4%.  Lower world trade volume is anticipated in response to global economic moderation and ongoing supply chain disruptions.  International commodity prices are rising, including energy, food and metal prices, thus intensifying inflationary pressures globally.  Elevated global financial market uncertainty persists given worsening geopolitical tensions amid faster monetary policy normalisation in several advanced economies, including the US, to control escalating inflationary pressures.  Such conditions have impacted the outlook for foreign capital flows, particularly portfolio investment, and increased currency pressures in developing economies, including Indonesia.

At home, greater public mobility is expected to drive the domestic economic recovery.  Economic gains continued in the first quarter of 2022, supported by higher consumption, non-building investment and export performance in line with increasing public mobility and improving economic activity.  Several early indicators in March 2022, namely retail sales, consumer expectations and manufacturing PMI, confirmed the ongoing domestic economic recovery.  Furthermore, economic growth is also supported by strong sectoral performance, including the manufacturing industry, trade, transportation and storage as well as information and communication.  Spatially, economic gains are primarily supported by regional growth that is accelerating in the Java and Balinusra regions, accompanied by solid economic performance in Sulawesi-Maluku-Papua (Sulampua), Sumatra and Kalimantan.  Moving forward, economic performance will be impacted by restrained export volume given lower global economic growth and world trade volume as a corollary of the Russia-Ukraine conflict.  Domestic demand will also be affected by muted export volume as well as higher global energy and food prices.  Consequently, Bank Indonesia projects national economic growth for 2022 in the 4.5-5.3% range, down slightly from 4.7-5.5% previously.

Indonesia's Balance of Payments (BOP) is forecast to remain solid, thereby supporting external sector resilience.  A low and manageable current account deficit is predicted for the first quarter of 2022, supported by a USD9.3 billion trade surplus.  The positive trade balance is underpinned by a large non-oil and gas trade surplus, primarily stemming from a high export value due to international commodity prices, including coal, iron and steel as well as metalliferous ores, despite a growing oil and gas trade deficit.  Meanwhile, foreign capital flows, which recorded a net outflow of USD1.8 billion in the first quarter of 2022, re-established a net inflow at the beginning of the second quarter of 2022, totalling USD0.8 billion as of 14^th April 2022.  The position of reserve assets at the end of March 2022 stood at USD139.1 billion, equivalent to 7.2 months of imports or 7.0 months of imports and servicing government external debt, which is well above the 3-month international adequacy standard.  Moving forward, high international commodity prices will boost export value in 2022, thus reducing the current account deficit, which Bank Indonesia now projects at 0.5-1.3% of GDP, compared with the previous projection of 1.1-1.9% of GDP.  In the same period, the capital and financial account is expected to maintain a surplus, primarily in the form of foreign direct investment (FDI) in line with a domestic climate conducive to investment.  Overall, Indonesia is expected to sustain a positive balance of payments, thereby supporting external sector resilience.

Rupiah exchange rate stability has been maintained despite persistent global financial market uncertainty.  Rupiah stability throughout April 2022 was supported by adequate domestic supply of foreign exchange, foreign capital inflows and positive perception surrounding Indonesia's economic outlook despite ongoing global financial market uncertainty.  As of 18^th April 2022, the rupiah depreciated by just 0.70% on the level recorded at the end of 2021, comparatively less than the currency depreciation experienced in several other developing economies, such as Thailand (0.77%), Malaysia (2.10%) and the Philippines (2.45%).  Moving forward, the value of the rupiah is expected to remain stable in line with solid economic fundamentals in Indonesia, particularly the lower current account deficit.  Furthermore, Bank Indonesia will continue to strengthen rupiah exchange rate stabilisation policy in line with market mechanisms and economic fundamentals.

Inflation remains under control and continues to support economic stability. The Consumer Price Index (CPI) in March 2022 recorded 0.66% (mtm) inflation.  Annually, CPI inflation in March 2022 stood at 2.64% (yoy), up from 2.06% (yoy) the month earlier.  Core inflation remains under control amid early signs of growing domestic demand, maintained exchange rate stability and policy consistency by Bank Indonesia to anchor inflation expectations.  Meanwhile, inflationary pressures on volatile food have increased due to soaring prices of cooking oil after an adjustment to the maximum retail price.  Administered prices (AP) inflation has been affected by household fuel and petroleum prices after the Government adjusted non-subsidised LPG and fuel prices, coupled with higher airfares on the back of increasing community mobility.  Inflation in 2022 is predicted to remain under control and within the 3.0%±1% target corridor in line with adequate supply to meet increasing demand, anchored inflation expectations, rupiah exchange rate stability as well as the optimal response implemented by Bank Indonesia and the Government.  Notwithstanding, Bank Indonesia will remain vigilant of the inflation risks, particularly the impact of rising global energy and food prices.  Bank Indonesia also remains firmly committed to maintaining price stability and strengthening policy coordination with the central and regional governments through the national and regional inflation control teams (TPIP and TPID) to control CPI inflation within the target.  Coordination with the Government has recently been strengthened to safeguard price stability during the holy fasting month of Ramadan and Eid-ul-Fitr 1443H.

Bank Indonesia continues to normalise liquidity policy by incrementally raising rupiah reserve requirements in line with the banking industry's ability to maintain adequate liquidity. The first stage of increasing the rupiah reserve requirement, coupled with the Reserve Requirement (RR) incentive since 1^st March 2022, has not reduced the banking industry's ability to disburse loans/financing to the corporate sector or participate in SBN purchases to finance the State Revenue and Expenditure Budget (APBN).  In March 2022, the ratio of liquid assets to deposits remained high at 32.11%, despite retreating from 32.72% one month earlier, with deposit growth recorded at 9.92% (yoy).  Meanwhile, through fiscal-monetary coordination in accordance with the Joint Decree of the Minister of Finance and Governor of Bank Indonesia, effective until 31^st December 2022, Bank Indonesia has continued to purchase SBN in the primary market to fund the national economic recovery as part of the State Budget in 2022 totalling Rp17.81 trillion (as of 14^th April 2022) via primary auction, greenshoe options and private placement. SBN purchases by Bank Indonesia take into careful consideration SBN market conditions and the impact on liquidity in the economy.  In March 2022, liquidity in the economy remained ample, as reflected by narrow money (M1) and broad money (M2) aggregates, which grew 18.68% (yoy) and 13.27% (yoy) respectively.

A consistently low policy rate and ample liquidity in the banking system continue to edge down lending rates in the banking industry, though by smaller increments.  In the markets, the IndONIA rate was stable in March 2022 at 2.79% compared with conditions in March 2021, while the 1-month deposit rate fell 91bps since March 2021 to 2.85% in March 2022.  In the credit market, the banking industry continues to lower lending rates on new loans, falling 17bps (yoy) in the same period, in line with decreasing prime lending rates (PLR) and improving risk perception as economic activity continues to recover.  Bank Indonesia still acknowledges an opportunity for the banking industry to increase lending/financing, including through lower lending rates, to hasten the national economic recovery.

Financial system resilience remains solid, accompanied by a gradual revival of the bank intermediation function.  The Capital Adequacy Ratio (CAR) in the banking industry remained high in February 2022 at 25.85%, with persistently low NPL ratios of 3.08% (gross) and 0.87% (nett).  Bank intermediation continued to improve in March 2022, with credit growth accelerating to 6.65% (yoy), affecting various bank groups, loan segments and economic sectors, including priority sectors, as corporate and household activity gained recovery momentum.  Corporate performance is improving, as reflected by stronger sales, capital expenditure and repayment capacity.  On the supply side, the banking industry continues to relax lending standards in line with lower credit risk perception.  In addition, MSME loan growth increased to 14.98% (yoy) in March 2022, primarily driven by loans extended to micro and small enterprises.  Credit and deposit growth in 2022, therefore, remain in line with previous projections, namely 6.0-8.0% and 7.0-9.0% respectively.

Bank Indonesia will continue strengthening a fast, convenient, affordable, secure and reliable as well as inclusive payment system to boost economic growth.  Digital economic and financial transactions are developing rapidly in line with greater public acceptance and growing public preference towards online retail as well as the expansion and convenience of digital payments and digital banking.  On the cashless side, the value of electronic money transactions grew 42.06% (yoy) in the first quarter of 2022, with 18.03% (yoy) projected for 2022 overall to reach Rp360 trillion.  The value of digital banking transactions increased 34.90% (yoy) in the first quarter of 2022, with 26.72% (yoy) projected for 2022 overall to reach Rp51,729 trillion.  Bank Indonesia continues to foster payment system innovation, including to support government programs and expedite the national economic recovery, while accelerating an inclusive and efficient digital economy and finance through cashless payment system policy.  Bank Indonesia is also expanding BI-FAST services via mobile banking and increasing communication with the public and relevant institutions. Synergy with the Government is constantly strengthened to accelerate digitalisation of the payments space by expanding electronification of social aid program (bansos) disbursements, regional government transactions and various transportation modes.  In terms of cash, currency in circulation expanded 13.58% (yoy) in the first quarter of 2022.  Furthermore, Bank Indonesia is strengthening public cash services through digitalisation of mobile cash services (PINTAR), maintaining currency availability and increasing the provision of currency by Rp27.4 trillion to a total of Rp202.7 trillion during Ramadan and Eid-ul-Fitr 1443H, while also strengthening institutional cooperation to ensure seamless currency distribution throughout the territory of the Republic of Indonesia.

Jakarta, 19^th April 2022

Head of Communication Department

Erwin Haryono