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The BI Board of Governors agreed on 21st and 22nd
September 2022 to raise the BI 7-Day Reverse Repo Rate (BI7DRR) by
50bps to 4.25%, while also raising the Deposit Facility (DF) and Lending
Facility (LF) rates by 50bps to 3.50% and 5.00% respectively.
The decision to raise the policy rate was taken as a front-loaded,
pre-emptive and forward-looking measure to lower inflation expectations
and return core inflation to the 3.0%±1% target corridor in the latter
half of 2023, while simultaneously strengthening exchange rate
stabilisation policy in line with the rupiah's fundamental value, caused
by elevated global financial market uncertainty amid strong and
increasing domestic demand. Bank Indonesia also continues to strengthen
its policy mix response to maintain stability and strengthen economic
recovery as follows:
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 effective
implementation of the 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 continues
to strengthen international cooperation with other central banks and
authorities in partner countries, while promoting investment and trade
in priority sectors in synergy with other relevant institutions.
Coordination with the Ministry of Finance and other relevant government
ministries/agencies is also being strengthened to ensure the success of
the six priority agendas in the Finance Track of Indonesia's G20
Presidency in 2022, including the 4th FMCBG meeting in October 2022 and the G20 Leaders' Summit in November 2022.
The global economy is prone to moderation, accompanied by intense inflationary pressures and global financial market uncertainty.
Economic growth is expected to decelerate further in 2023, particularly
in the United States, Europe and China, with the threat of recession
looming in several advanced economies. World trade volume is also low.
Amid the economic moderation, supply disruptions are increasing, thus
creating persistently high energy prices. Global inflationary pressures
are escalating in response to geopolitical tensions, inward-looking
policies and the recent heatwave experienced in several countries.
Inflation in advanced economies and emerging markets is soaring, with
the rising trend of core inflation prompting more aggressive monetary
policy in many jurisdictions. The US Federal Reserve has hiked the
federal funds rate, with potentially more aggressive increases ahead.
The move has strengthened the US dollar and heightened global financial
market uncertainty, thus restraining portfolio investment flows and
intensifying currency pressures in emerging markets, including
At home, the national economic recovery remains intact given improving domestic demand and positive export performance.
Private consumption has grown significantly on rising incomes,
available financing and stronger consumer confidence in line with
increasing mobility. Household consumption is supported by government
policy to increase social assistance and maintain public purchasing
power, particularly among low earners, amid rising inflation after the
Government reallocated fuel subsidies. Domestic demand has also
increased in terms of investment, non-building investment in
particular. Ongoing domestic economic improvements were also reflected
in several early indicators released in August 2022 and the latest
surveys conducted by Bank Indonesia, including improving consumer
confidence, retail sales and the manufacturing Purchasing Managers Index
(PMI). Externally, solid export performance is expected to persist,
specifically in terms of crude palm oil (CPO), coal, iron and steel in
line with strong demand in key trading partners and government policy to
stimulate CPO exports, while relaxing entry restrictions for
international travellers. Spatially, positive export performance was
supported by all regions, especially Kalimantan and Sumatra.
Furthermore, national economic improvements were also reflected in the
main economic sectors, namely the manufacturing industry, mining and
agriculture. Consequently, economic growth in 2022 is projected with a
bias towards the upper bound of Bank Indonesia's 4.5-5.3% projection.
Indonesia's Balance of Payments (BOP) is expected to improve in line with solid export performance.
A strong current account in the third quarter of 2022 is projected,
underpinned by improving export performance on strong demand in several
key trading partners, along with government policy support to stimulate
exports and persistently high international commodity prices.
Meanwhile, pressures on foreign capital flows remain, primarily in the
form of portfolio investment, amid increasing global financial market
uncertainty. In the third quarter of 2022 (as of 20th
September 2022), portfolio investment recorded a net outflow totalling
USD0.6 billion. The position of reserve assets in Indonesia at the end
of August 2022 stood at USD132.2 billion, equivalent to 6.1 months of
imports or 6.0 months of imports and servicing government external debt,
which is well above the 3-month international adequacy standard. BOP
performance in 2022 will be maintained in line with a current account
expected to surpass the previous projection, primarily supported by
persistently high international commodity prices and supported by a
capital and financial account surplus, dominated by foreign direct
investment (FDI), in line with the conducive investment climate in
Rupiah stability has been maintained despite increasing global financial market uncertainty. As of 21st
September 2022, the rupiah depreciated 1.03% (ptp) on the level
recorded at the end of August 2022. Rupiah performance has been
maintained with the support of domestic foreign exchange supply,
positive perception concerning Indonesia's economic outlook as well as
BI stabilisation measures. As of 21st September 2022,
therefore, the rupiah depreciated 4.97% (ytd) on the level recorded at
the end of 2021, which is nevertheless comparatively lower than the
currency depreciation experienced in other peer countries, such as India
(7.05%), Malaysia (8.51%) and Thailand (10.07%). Moving forward, Bank
Indonesia will continue to strengthen rupiah stabilisation policy in
line with the currency's fundamental value, thereby reinforcing
macroeconomic stability and efforts to manage inflation.
Soaring global food and energy prices, coupled with higher fuel prices at home, are intensifying inflationary pressures.
The Consumer Price Index (CPI) in August 2022 recorded 4.69% (yoy)
inflation in line with higher administered prices (AP) inflation at
6.84% (yoy) and core inflation at 3.04% (yoy). In contrast, volatile
food (VF) inflation slowed to 8.93% (yoy) as regional supply from
production hubs increased. Pressures on CPI inflation are expected to
intensify after the Government raised subsidised fuel prices amid
persistently high international energy and food prices. Core inflation
and inflation expectations are forecast to increase due to the
second-round effect of higher fuel prices and a build-up of inflationary
pressures on the demand side. Such developments are predicted to push
inflation in 2022 beyond the upper limit of the 3.0%±1% target, thus
necessitating stronger policy synergy between the central/regional
government and Bank Indonesia on the supply and demand sides to return
inflation to the target corridor in the second semester of 2023.
Ample liquidity in the banking industry and economy remains.
Gradually, Bank Indonesia continues to normalise liquidity policy by
raising rupiah reserve requirements (RR) and maintaining the RR
incentive, which absorbed Rp269.3 trillion of liquidity in the banking
industry from 1st March to 15th September 2022
without disrupting the intermediation function or participation in SBN
purchases to fund the State Revenue and Expenditure Budget (APBN). In
August 2022, the ratio of liquid assets to third-party funds remained
high at 26.52%. Furthermore, liquidity conditions in the economy are
loose, as reflected by 13.7% (yoy) and 9.5% (yoy) growth of narrow money
(M1) and broad money (M2) aggregates respectively. Meanwhile,
implementing the Joint Decree of the Finance Minister and Bank Indonesia
Governor, 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 Rp102.3 trillion as of 20th
September 2022. In addition, the implementation of operation twist has
successfully raised the yields of short SBN tenors, while maintaining
longer term yields. On 20th September 2022, the IndONIA rate
had increased 58bps compared with the level recorded at the end of July
2022, thus reaching 3.38%.
The bank intermediation function continues to improve and support the economic recovery.
Growth of outstanding loans disbursed by the banking industry in August
2022 stood at 10.62% (yoy), boosted by all loan types and most economic
sectors. Intermediation in the sharia banking industry also continues
to recover, with growth accelerating to 18.7% (yoy) in August 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 agricultural
sector, manufacturing industry, construction and trade. The banking
industry continues to lower interest rates. In the markets, the 1-month
deposit rate has fallen 44bps since August 2021 to reach 2.90% in
August 2022. In the credit market, the banking industry lowered lending
rates by 48bps in the same period to 8.94%. On the demand side, an
ongoing corporate and household sector recovery is driving
intermediation. In the corporate sector, improving performance is
reflected in the high growth of sales and capital expenditures (CapEx),
particularly in the agricultural sector, mining, manufacturing and
trade, coupled with increasing tax revenues from the corporate sector.
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 stood at 16.77% (yoy) in August
2022, primarily supported by the micro segment.
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 July 2022 at 24.86%. Strong capital is helping to minimise credit
risk, as reflected by low NPL ratios of 2.90% (gross) and 0.82% (nett).
Liquidity in the banking industry was maintained in August 2022,
supported by deposit growth of 7.77% (yoy) despite moderating from 8.59%
in July 2022 due to increasing private consumption and corporate
capital expenditures as well as the current preference to place funds in
other financial assets, as indicated by the value of SBN holdings. BI
simulations confirmed that bank resilience has been maintained, yet
several risk factors stemming from domestic macroeconomic conditions and
external shocks demand vigilance due to their potential impact on the
pace of intermediation recovery moving forward.
Bank Indonesia is strengthening payment system policy and accelerating digitalisation to support economic recovery.
Despite the challenges posed by inflationary pressures, 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 43.24% (yoy) in August 2022 to reach Rp35.5 trillion
and the value of digital banking transactions increased 31.40% (yoy) to
Rp4,557.5 trillion as community mobility returns to normal. Meanwhile,
payment transactions using ATM cards, debit cards and credit cards
climbed 34.72% (yoy) to Rp722.5 trillion in the reporting period. Bank
Indonesia continues to foster payment system innovation, including
ongoing preparations for the gradual implementation of a domestic
government credit card (KKP), which will increase KKP acceptance and
transactions, while improving government transaction efficiency. In
terms of cash, currency in circulation in August 2022 increased 6.96%
(yoy) to reach Rp902.7 trillion. Bank Indonesia continues to ensure the
availability of quality rupiah currency fit for circulation throughout
the territory of the Republic of Indonesia, including the new 2022
series of rupiah banknotes.
Jakarta, 22nd September 2022
Head of Communication Department
Contact Center BICARA : (62 21) 131E-mail : firstname.lastname@example.orgWorking hours: Monday to Friday, 08.00-16.00 West Indonesia Time
BI 7-Day Reverse Repo Rate Raised 50bps to 5.25%: Synergy Maintaining Stability and Recovery Momentum
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Indonesia’s External Debt Decreased in the Third Quarter of 2022
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