No. 24/313/DKom The BI Board of Governors agreed on 16th and 17th
November 2022 to raise the BI 7-Day Reverse Repo Rate (BI7DRR) by 50bps
to 5.25%, while also raising the Deposit Facility (DF) and Lending
Facility (LF) rates by 50bps to 4.50% and 6.00% respectively. The
decision to raise the policy rate was taken as a front-loaded,
pre-emptive and forward-looking measure to lower inflation expectations,
which are currently overshooting and return core inflation to the
3.0%±1% target range earlier, specifically in the first half of 2023,
while simultaneously strengthening exchange rate stabilisation policy in
line with the rupiah's fundamental value in response to the strong US
dollar and elevated global financial market uncertainty amid strong and
growing domestic economic demand.
Bank
Indonesia also continues to strengthen its policy mix response to
maintain stability and strengthen economic recovery as follows:
- Strengthening
monetary operations by increasing the interest rate structure in the
money market in accordance with the higher BI7DRR to lower inflation
expectations and return core inflation to the target.
- Strengthening
rupiah stabilisation policy as part of the measures to control
inflation, primarily imported inflation, through foreign exchange market
intervention, including spot and DNDF transactions, as well as
buying/selling SBN in the secondary market.
- Continuing to
buy/sell SBN in the secondary market to strengthen transmission of the
higher BI7DRR by increasing the attractiveness of SBN yields for foreign
portfolio investment inflows to strengthen exchange rate stabilisation
measures.
- Issuing Bank Indonesia Sukuk (SukBI) for use as
underlying instruments in the form of inclusive financing securities
(inclusive SukBI), which are recognised as SPBI (Surat Berharga
Pembiayaan Inklusif), in line with BI commitment to support inclusive
financing and develop the sharia economy and finance.
- Maintaining
prime lending rate (SBDK) transparency policy in the banking industry
with a focus on the response of interest rates in the banking industry
to policy rate (Appendix).
- Fostering the use of QRIS and
continuing to develop QRIS features and services, including cross-border
QRIS, after achieving the target of 15 million new users in October
2022.
- Fostering payment system innovation, including public
acceptance of BI-FAST, by expanding participation and service channels,
while maintaining effective regular public communication.
Policy
coordination among the central government, regional governments, and
strategic partners within the Central and Regional Inflation Control
Teams (TPIP and TPID) is constantly strengthened through the
implementation of National Movement for Food Inflation Control (GNPIP)
in various regions. Policy synergy between Bank Indonesia and government
fiscal policy, as well as with the Financial System Stability
Committee, is also being strengthened to maintain macroeconomic and
financial system stability, while reviving lending to businesses in
priority sectors to stimulate economic growth and exports, while
increasing economic and financial inclusion. Bank Indonesia has also
strengthened international cooperation with other central banks and
financial authorities, while promoting investment and trade in priority
sectors in synergy with relevant institutions.
The
global economy is prone to moderation, accompanied by intense
inflationary pressures, aggressive monetary policy rate hikes and
financial market uncertainty. Global economic growth in 2023
is expected to decelerate compared with conditions in 2022, with lower
correction risk and high risk of recession in several jurisdictions,
including the United States and Europe. Global economic moderation
stems from ongoing geopolitical tensions that have triggered economic,
trade and investment fragmentation, and prompted more aggressive
tightening of monetary policy. Meanwhile, intense inflationary
pressures and high core inflation globally still pose a threat in line
with supply chain disruptions and labour market rigidity, predominantly
in the US and Europe, amid compressed global demand. In response,
central banks in many jurisdictions continue to tighten monetary policy
more aggressively. A higher for longer federal funds rate (FFR), which
is expected to last into the beginning of 2023 (higher for longer), is
strengthening the US dollar, thus inducing depreciatory pressures in
various economies. Currency pressures are escalating with increasing
global financial market uncertainty. The outflows of foreign portfolio
investment exacerbate exchange rate pressures in EMEs, including
Indonesia.
At home, the national economic recovery remains intact.
Economic performance in Indonesia strengthened in the third quarter of
2022, with growth accelerating to 5.72% (yoy) from 5.45% (yoy) in the
previous period, supported by improving domestic demand and solid export
performance. National economic improvements were also reflected in the
main economic sectors, namely the manufacturing industry,
transportation and storage as well as wholesale and retail trade.
Spatially, economic gains were supported by growth in all regions of the
archipelago, led by Sulawesi-Maluku-Papua (Sulampua), followed by
Bali-Nusa Tenggara (Balinusra), Java, Kalimantan and Sumatra. Several
early indicators in October 2022 and the latest surveys conducted by
Bank Indonesia, including consumer confidence, retail sales and the
Manufacturing Purchasing Managers Index (PMI), confirm that the domestic
economic recovery process remains intact. Externally, solid export
performance is expected to endure, specifically in terms of coal, crude
palm oil (CPO), iron and steel, as well as export services, in line with
strong demand in several key trading partners and strong government
policy support. Consequently, economic growth in 2022 is projected with
a bias towards the upper bound of Bank Indonesia's 4.5-5.3% projection.
Meanwhile, strong economic growth is still projected for 2023 on the
back of solid domestic demand and positive export performance despite
the risks posed by deeper global economic moderation.
Indonesia's Balance of Payments (BOP) remains sound, thereby strengthening external resilience.
The current account in the third quarter of 2022 is projected to record
a larger surplus compared with conditions in the previous period,
supported by strong non-oil and gas export performance. In contrast,
the capital and financial account is expected to record a deficit in
line with foreign capital outflows, primarily in the form of portfolio
investment, against a backdrop of strong foreign direct investment
(FDI). Entering the fourth quarter of 2022, a positive trade balance was
maintained, amassing a USD5.7 billion surplus in October 2022.
Pressures on foreign capital flows are persistent, with portfolio
investment in the fourth quarter of 2022 (as of 15th November
2022) recording a net outflow of USD0.3 billion. The position of
reserve assets in Indonesia at the end of October 2022 stood at USD130.2
billion, equivalent to 5.8 months of imports or 5.6 months of imports
and servicing government external debt, which is well above the 3-month
international adequacy standard. Overall, Bank Indonesia expects to
maintain BOP performance in 2022, with a positive current account in the
0.4-1.2% of GDP range, coupled with a sound capital and financial
account, dominated by FDI. Strong BOP performance is projected for 2023,
supported by a solid current account and capital and financial account,
notwithstanding the persistent risk of uncertainty blighting global
financial markets.
The strong
US dollar and elevated global financial market uncertainty are
intensifying broad-based depreciatory pressures on all currencies
globally, including the rupiah. The US dollar (DXY) Index stood at 106.28 on 16th
November 2022, increasing 11.09% (ytd) in 2022. Meanwhile, thanks to
the stabilisation measures implemented by Bank Indonesia, the rupiah
depreciated just 8.65% (ytd) as of 16th November 2022
compared with the level recorded at the end of 2021, which is
comparatively lower than the currency depreciation experienced in
neighbouring countries, such as South Korea 10.30% (ytd) and the
Philippines 11.10% (ytd). The strong US dollar stems from aggressive
monetary policy tightening in the US and a rebalancing of capital from
various jurisdictions to the US amid economic moderation and soaring
inflation in Europe. At the same time, elevated global financial market
uncertainty persists. Moving forward, Bank Indonesia will continue to
strengthen rupiah stabilisation policy in line with market mechanisms
and the currency's fundamental value in order to support measures to
manage inflation and maintain macroeconomic stability.
Inflation expectations remain high notwithstanding a lower Consumer Price Index (CPI) than previously projected.
CPI inflation in October 2022 stood at 5.71% (yoy), which is still
above the 3.0%±1% target corridor, yet below the previous projection and
the 5.95% (yoy) recorded one month earlier. Volatile food (VF)
inflation decreased to 7.19% (yoy) but requires strong policy synergy
and coordination through the TPIP-TPID teams and GNPIP movement to
continue the downward trend. Inflationary pressures on administered
prices (AP) stood at 13.28% (yoy), thus requiring strong coordination to
mitigate the second-round effect of fuel price hikes and higher
airfares. Meanwhile, core inflation increased to 3.31% (yoy) in
response to the second-round effect of fuel price hikes and higher
inflation expectations. The Consensus Forecast published in November
2022 pointed to high inflation expectations at the end of 2022, namely
5.9% (yoy), despite retreating from 6.7% (yoy) the month earlier.
Consequently, Bank Indonesia will strengthen its monetary policy
response to lower inflation expectations, which are currently
overshooting, while ensuring core inflation returns to the 3.0%±1%
target range earlier, specifically in the first half of 2023.
Liquidity in the banking industry is increasing and adequate to support intermediation.
In October 2022, the ratio of liquid assets to third-party funds
remained high and increased to 29.46%. Liquidity conditions in the
economy are loose, as reflected by 14.9% (yoy) and 9.8% (yoy) growth of
narrow money (M1) and broad money (M2) aggregates respectively.
Meanwhile, implementing the Joint Decree between Bank Indonesia and the
Ministry of Finance, BI continues to purchase SBN in the primary market
to fund the national economic recovery and finance the health and
humanitarian aspects of the Covid-19 pandemic, totalling Rp142.35
trillion as of 15th November 2022. Ample liquidity is also helping to drive the economic recovery.
Transmission of the higher policy rate has raised money market rates amid interest rate rigidity in the banking industry. In the markets, the IndONIA rate increased 150bps from the end of July 2022 to 4.30% on 16th November
2022 in line with the higher BI7DRR and strengthening the monetary
operations strategy of Bank Indonesia. Short-term SBN yields are up
143bps, coupled with relatively stable long-term SBN yields. Meanwhile,
lending rates and funding costs in the banking industry are
experiencing rigidity. The 1-month term deposit rate in October 2022
increased to 3.40% from 2.89% in July 2022, while the lending rate in
October 2022 increased slightly to 9.09% from 8.94% in July 2022.
Lending rates are experiencing rigidity in line with loose liquidity
conditions that are prolonging the lag effect of policy rate
transmission to lending and funding rates.
The bank intermediation function continues to improve and support the economic recovery.
Growth of outstanding loans disbursed by the banking industry in
October 2022 stood at 11.95% (yoy), boosted by all loan types and nearly
all economic sectors. Intermediation in the sharia banking industry
also continues to recover, with growth recorded at 18.4% (yoy) in
October 2022. On the supply side, a stronger intermediation function
was supported by lending standards that remain loose in the banking
industry given the improving appetite to disburse loans, primarily to
the manufacturing industry, trade sector and agriculture. On the demand
side, an ongoing corporate and household sector recovery is driving
intermediation. Corporate sector performance is reflected by improving
repayment capacity, sales and capital expenditures (CapEx), particularly
in the trade and mining sectors. Household performance is indicated by
improving consumption and investment in line with consumer optimism. In
terms of micro, small and medium enterprises, MSME loan growth was
recorded at 17.50% (yoy) in October 2022. Bank Indonesia continues to
monitor various domestic and global macroeconomic risks that could spill
over into the financial system, while strengthening synergy with the
Financial System Stability Committee to maintain the stability of the
financial system.
Financial system resilience remains solid, particularly the banking industry, in terms of capital and liquidity.
The Capital Adequacy Ratio (CAR) in the banking industry was still high
in September 2022 at 25.09%. Strong capital is helping to minimise
credit risk, as reflected by low NPL ratios of 2.78% (gross) and 0.77%
(nett). Liquidity in the banking industry was maintained in October
2022, supported by 9.41% (yoy) growth of third-party funds, up on the
previous period in line with a net fiscal expansion. Third-party funds
increased in the corporate and household sectors in line with the
ongoing national economic recovery. Meanwhile, BI simulations confirmed
that bank resilience has been maintained, yet the potential impact of
several risk factors stemming from domestic macroeconomic conditions and
global economic turmoil demand vigilance.
Bank
Indonesia continues to improve payment system efficiency by
strengthening payment system policy and accelerating payment system
digitalisation to support inclusive economic growth. Digital
economic and financial transactions continue to increase in line with
greater public acceptance and growing public preference towards online
retail as well as the expansion and convenience of the digital payment
system and accelerating digital banking. The value of electronic money
transactions grew 20.19% (yoy) in October 2022 to reach Rp35.1 trillion,
while the value of digital banking transactions increased 38.38% (yoy)
to reach Rp5,184.1 trillion as public mobility continues to normalise.
Meanwhile, the value of transactions using ATM cards, debit cards and
credit cards increased 23.52% (yoy) to reach Rp691.6 trillion in the
reporting period. In terms of cash, currency in circulation increased
6.04% (yoy) to reach Rp905.9 trillion in October 2022. Bank Indonesia
continues to ensure the availability of quality rupiah currency fit for
circulation throughout the territory of the Republic of Indonesia.
Jakarta, 17th November 2022
Head of Communication Department
Erwin Haryono
Executive Director