No. 25/259/DKom 

The BI Board of Governors Meeting agreed on 20th and 21st September 2023 to hold the BI 7-Day Reverse Repo Rate (BI7DRR) at 5.75%, while also maintaining the Deposit Facility (DF) rate at 5.00% and Lending Facility (LF) rate at 6.50%. The decision is consistent with the monetary policy stance to control low inflation within the 3.0%±1% target in 2023 and 2.5%±1% in 2024. The policy focus is oriented towards strengthening rupiah stability to anticipate the contagion effect of global financial market uncertainty.  Meanwhile, Bank Indonesia is still orienting accommodative macroprudential policy towards reviving bank lending/financing to businesses through macroprudential liquidity policy incentives with a focus on downstreaming, housing, tourism as well as green and inclusive finance, effective from 1st October 2023.  Furthermore, Bank Indonesia is also accelerating payment system digitalisation to expand digital economic and financial inclusion, including the electronification of financial transactions in the central and regional government.

Bank Indonesia, therefore, has strengthened its mix of monetary, macroprudential and payment system policies to maintain stability and revive sustainable growth as follows:

1. Rupiah stabilisation through foreign exchange market intervention with a focus on spot and Domestic Non-Deliverable Forward (DNDF) transactions.
2. Implementing Bank Indonesia Rupiah Securities (SRBI) as pro-market monetary instruments to strengthen money market deepening efforts, attract portfolio inflows and optimise the SBN assets held by Bank Indonesia as underlying.
3. Deepening prime lending rate (PLR) transparency policy with a focus on interest rates in the MSME sector (Appendix).
4. Accelerating payment system digitalisation towards greater transaction efficiency and expanding the digital economy and finance ecosystem by:
   1. expanding QRIS acceptance through targeted socialisation activities for priority communities and in synergy with other initiatives,
   2. increasing the monitoring of QRIS implementation policy, including QRIS Withdrawal, Transfer and Deposit (TUNTAS) and the merchant discount rate (MDR) for micro enterprises, and
   3. strengthening Indonesia Credit Card (Kartu Kredit Indonesia - KKI) implementation in the government segment, particularly regional government, through coordination with the Ministry of Home Affairs.
5. Expanding cooperation with several central banks using Local Currency Transactions (LCT) for trade, investment, financial markets and banking, as well as cross-border payments, supported by the National LCT Task Force.
   

Policy coordination with the (central and regional) Government and strategic partners is also strengthened constantly, which includes strengthening the National Movement for Food Inflation Control (GNPIP) in various regions within the Central and Regional Inflation Control Teams (TPIP and TPID), as well as Accelerating and Expanding Digitalisation of Central and Regional Government Transactions (P2DD). Furthermore, policy synergy between Bank Indonesia and the Financial System Stability Committee is also strengthened to maintain macroeconomic and financial sector stability, while reviving lending/financing to businesses, particularly priority sectors, to stimulate economic growth and exports as well as expand the green and inclusive economy and finance.

Global economic uncertainty remains heightened.  Global economic growth in 2023 is still projected at 2.7%, with economic moderation expected in China accompanied by stronger economic performance in the United States. Lower economic growth in China is a corollary of weaker domestic demand due to economic confidence, household debt, and issues plaguing the property sector amid lower exports in response to the global economic slowdown.  The US economy is gaining traction on the back of household consumption induced by higher wages and excess savings.  Meanwhile, inflation in advanced economies remains high due to inflationary pressures on services, tight labour markets and rising oil prices. Such conditions are perpetuating monetary policy rate hikes in advanced economies, particularly the Federal Funds Rate (FFR), thus increasing global financial market uncertainty.  Consequently, capital outflow and currency depreciation pressures in developing economies are intensifying, necessitating a strong policy response to mitigate global contagion risk, including in Indonesia.

At home, economic growth in Indonesia remains solid, supported by domestic demand.  Solid household consumption growth is expected in line with persistent public confidence, including the younger generation, to increase their consumption of services.  Investment continues to perform well in line with the ongoing completion of national strategic projects (PSN).  Exports have slowed due to weaker global demand and falling commodity prices, despite solid services exports. By sector, several services sectors are contributing to economic growth, including wholesale and retail trade, transportation and logistics, as well as accommodation and food service activities.  The latest surveys conducted by Bank Indonesia also support the economic growth forecast, including high consumer confidence, positive retail sales, an expansionary Manufacturing Purchasing Managers Index (PMI), and increasing cement sales.  Bank Indonesia projects economic growth in 2023 in the 4.5-5.3% range.  Moreover, Bank Indonesia will continue strengthening synergy between the fiscal stimuli of the Government and macroprudential stimuli of Bank Indonesia to revive economic growth, particularly on the demand side. 

Indonesia's Balance of Payments (BOP) remains manageable. As of August 2023, the trade balance recorded a USD4.4 billion surplus, thus supporting the current account in the third quarter of 2023.  Meanwhile, foreign capital flows to domestic financial markets in the form of portfolio investment in the third quarter of 2023 (as of 19th September 2023) recorded a net outflow totalling USD1.7 billion, triggered by rising global financial market uncertainty. The position of reserve assets at the end of August 2023 remained high at USD137.1 billion, equivalent to 6.2 months of imports or 6.0 months of imports and servicing government external debt, which is well above the international adequacy standard of around 3 months of imports.  Looking ahead, BOP performance in 2023 is forecast to remain sound, supported by a manageable current account maintained in the range of a 0.4% surplus to a 0.4% deficit of GDP. In addition, the capital and financial account will be maintained on the back of foreign capital inflows in the form of foreign direct investment (FDI). 

Rupiah exchange rates remain under control in line with the stabilisation measures implemented by Bank Indonesia.  Increasing global financial market uncertainty caused the rupiah exchange rate in September 2023 (as of 20th September 2023) to lose 0.98% (ptp) in value compared with the level at the end of August 2023. Year to date, however, the rupiah has gained 1.22% in value from the position recorded at the end of December 2022, thereby exceeding the exchange rate performance recorded in other developing economies, including the Indian rupee, Philippine peso and Thai baht, which experienced 0.42%, 1.92% and 4.03% depreciation respectively.  Moving forward, Bank Indonesia expects to maintain rupiah stability in line with positive investor perception concerning the national economic outlook, low inflation and attractive yields on domestic financial assets for investment.  Bank Indonesia continues strengthening rupiah stabilisation policy through foreign exchange market intervention, increasing the effective implementation of instruments to retain the proceeds of natural resources exports in accordance with Government Regulation Number 36 of 2023, as well as continuing to issue SRBI. 

Inflation remains under control within the target corridor.  Consumer Price Index (CPI) inflation was recorded in August 2023 at 3.27% (yoy), thus remaining within the 3.0%±1% target.  Core inflation stood at 2.18% (yoy), down from 2.43% (yoy) the month earlier, in line with managed demand, anchored inflation expectations and low imported inflation. The volatile food (VF) component remained manageable at 2.42% (yoy) given the success of the GNPIP movement in various regions in terms of controlling food prices.  Meanwhile, administered prices (AP) inflation continued falling to 8.05% (yoy) from 8.42% (yoy) in the reporting period. Moving forward, Bank Indonesia will continue strengthening the monetary policy mix as well as synergy with the (central and regional) Government through the TPIP and TPID teams to manage inflation.  Bank Indonesia, therefore, is confident that inflation will remain under control in the 3.0%±1% target this year and 2.5%±1% in 2024. 

Bank Indonesia continues to innovate monetary policy, which includes safeguarding manageable inflation and rupiah stability.  To that end, the policy rate was strengthened by issuing pro-market monetary instruments in the form of Bank Indonesia Rupiah Securities (SRBI) to bolster money market deepening efforts, attract portfolio inflows and optimise the SBN assets held by Bank Indonesia as underlying. The markets have embraced SRBI issuances enthusiastically, with both auctions oversubscribed in September 2023.  At the inaugural auction on 15th September 2023, bids totalling Rp29.9 trillion were received, or 4.2 times above the Rp7 trillion target.  At the second auction on 20th September 2023, the Rp5 trillion target was oversubscribed by 3.12 times, with bids totalling Rp15.6 trillion. 

Bank lending/financing continues accelerating across all economic sectors.  Loans disbursed by the banking industry in August 2023 grew 9.06% (yoy), up from 8.54% (yoy) the month earlier, primarily driven by corporate services, trade and social services.  Consistent with aggregate credit growth, Islamic finance maintained solid 14.52% (yoy) growth in the reporting period. In the MSME segment, the growth trend improved to 8.90% (yoy), predominantly boosted by the micro segment.  Moving forward, Bank Indonesia will continue ensuring adequate liquidity in the banking system, including through macroprudential liquidity policy incentives to revive lending/financing to businesses.  Furthermore, Bank Indonesia will continue strengthening synergy with the Government, banking industry and business community to increase bank lending/financing, primarily targeting sectors with leverage in the national economy, namely downstream sectors (mineral and coal mining, agriculture, livestock and fishing), housing (including affordable housing), tourism, inclusive sectors (including MSMEs and People's Business Loans - KUR), as well as the ultra-micro segment and green economy. 

Financial system resilience remains solid, particularly the banking industry.  The Capital Adequacy Ratio (CAR) in the banking industry was still high in July 2023 at 27.44%.  Credit risk was also mitigated effectively, as reflected by low NPL ratios of 2.51% (gross) and 0.80% (nett) in July 2023.   Liquidity in the banking industry in August 2023 was maintained, supported by 6.24% (yoy) growth of third-party funds (TPF).  Meanwhile, the ratio of liquid assets to third-party funds also remained high in August 2023 at 26.49% in line with the accommodative liquidity policy stance held by Bank Indonesia.  This allowed interest rates in the banking industry to remain low, with the 1-month deposit rate and lending rate in August 2023 recorded at 4.23% and 9.34% respectively.  Furthermore, BI stress tests further confirmed solid banking industry resilience.  Bank Indonesia will continue strengthening synergy with the Financial System Stability Committee (KSSK) to mitigate various domestic and global economic risks that could undermine financial system resilience and economic recovery momentum. 

Digital economic and financial transactions continue to perform solidly, supported by a secure, uninterrupted and reliable payment system.  The value of electronic money transactions in August 2023 increased 8.62% (yoy) to reach Rp38.51 trillion, while the value of digital banking transactions grew 11.87% (yoy) to Rp5,098.46 trillion.  The value of QRIS transactions continues enjoying strong 89.64% (yoy) growth, amounting to Rp18.33 trillion, with users and merchants totalling 40.05 million and 28.38 million respectively, dominated by MSMEs. Bank Indonesia continues accelerating payment system digitalisation and expanding cross-border payment linkages towards greater economic and financial inclusion as well as expansion of the digital economy and finance.  Meanwhile, the value of card-based payments using ATM, debit and credit cards reached Rp679.16 trillion in the reporting period, down 6.00% (yoy). In terms of rupiah currency management, total currency in circulation in August 2023 grew 4.66% (yoy) to Rp944.70 trillion. Bank Indonesia continues ensuring the availability of rupiah currency fit for circulation in all regions of the Republic of Indonesia through programs to circulate the rupiah in 3T (outermost, frontier, remote) regions as well as mobile cash services, cash deposit services and the Sovereign Rupiah Expedition.

Jakarta, 21st September 2023

Communication Department

Erwin Haryono

Executive Director