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​​Economic and Monetary Policy Department​​​
4/19/2023 9:00 PM
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Monetary Policy Report - Quarter I 2023


MPR-Quarter-I-2023-EN.pngThe BI Board of Governors Meeting agreed on 17th and 18th April 2023 to hold the BI 7-Day Reverse Repo Rate 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 pre-emptive and forward-looking monetary policy stance to ensure lower inflation expectations and inflation moving forward.  Bank Indonesia is confident that a BI7DRR rate of 5.75% is sufficient to direct core inflation within the 3.0%±1% target corridor in 2023 and return Consumer Price Index (CPI) inflation to the 3.0%±1% sooner than previously projected.  Rupiah stabilisation policy has also been strengthened to control imported inflation and mitigate the contagion effect of global financial market uncertainty on the rupiah.

Bank Indonesia, therefore, has strengthened its policy mix response to maintain stability and revive growth as follows:

  1. Strengthening monetary operations to increase the effectiveness of monetary policy transmission.
  2. Strengthening rupiah stabilisation policy as part of the measures to control inflation, particularly imported inflation, through foreign exchange market intervention, including spot and Domestic Non-Deliverable Forward (DNDF) transactions, as well as buying/selling government securities (SBN) in the secondary market.
  3. Continuing the twist operation by selling short-term SBN in the secondary market to increase the attractiveness of SBN yields for foreign portfolio investment inflows to strengthen rupiah stabilisation measures.
  4. Maintaining accommodative monetary policy by holding: (a) the Countercyclical Capital Buffer (CCyB) at 0%, (b) Macroprudential Intermediation Ratio (MIR) in the 84-94% range, and (c) Macroprudential Liquidity Buffer (MPLB) at 6% with 6% repo flexibility and the Sharia MPLB at 4.5% with 4.5% repo flexibility.
  5. Increasing the macroprudential policy incentives to revive bank lending to priority sectors and Slow Starters, including People's Business Loans (KUR) and green finance, effective from 1st April 2023, as follows:
    1. Increasing the total macroprudential incentives available to banks from 200bps to 280bps, comprising incentives for lending to priority sectors up to a maximum of 1.5%, a twofold increase in the incentives for extending People's Business Loans (KUR) and MSME loans/financing up to 1%, and incentives for disbursing green finance up to 0.3%.
    2. Reallocating the target of macroprudential incentives to Slow Starters by maintaining a low credit growth threshold at a minimum of 1%, while raising the threshold for Growth Drivers and Resilient subsectors from 1% to 3% and 5% respectively.
  6. Continuing prime lending rate (PLR) transparency policy with a focus lending rates in sectors associated with downstreaming (Appendix).
  7. Strengthening payment system digitalisation policy to improve transaction efficiency as well as the economic-financial digital ecosystem by: (i) implementing cross-border QRIS payment interconnectivity between Indonesia and Malaysia, and (ii) rolling out the physical domestic government credit card in close coordination with the Government and Indonesia Payment System Association (ASPI) to coincide with the Indonesia Digital Economy and Finance Festival (FEKDI) at the beginning of May 2023.
  8. Strengthening payment system policy during the holy fasting month of Ramadan and Eid-ul-Fitr 1444 H by safeguarding the availability, reliability and security of the BI and industry payment systems, which includes monitoring the reliability of participants' systems to provide payment system transaction services, and ensuring the availability of rupiah currency fit for circulation throughout the territory of the Republic of Indonesia.
  9. Strengthening international cooperation with other central banks and authorities in partner countries, while promoting trade and investment in priority sectors in synergy with relevant institutions.  In addition, Bank Indonesia is continuing to collaborate with relevant government ministries/agencies to ensure a successful ASEAN Chairmanship in 2023, particularly in terms of the finance track.

Policy coordination with the (central and regional) Government and strategic partners is also strengthened constantly.  To that end, coordination within the Central and Regional Inflation Control Teams (TPIP and TPID) is maintained by strengthening the National Movement for Food Inflation Control (GNPIP) in various regions.  Furthermore, policy synergy between Bank Indonesia and the Financial System Stability Committee is also strengthened to maintain macroeconomic and financial system stability, while reviving lending/financing to priority sectors to support economic growth and exports, as well as advancing the green and inclusive economy and finance.

Global economic improvements are persisting.  Bank Indonesia still projects global economic growth in 2023 at 2.6% given the positive impact of post-pandemic economic growth in China, particularly the services sector, thereby alleviating the contagion effect to the global economy compared with the previous projection.  Stronger economic growth in the United States (US) is also forecast due to solid first-quarter performance in 2023.  Improving economic growth, coupled with tight labour markets in the US and Europe, have prolonged the process of lowering global inflation and extended monetary policy tightening in advanced economies for longer, which is nevertheless expected to peak soon.  Meanwhile, the response of central banks in the US and Europe to mitigate the risk of bank closures has eased global financial market uncertainty.  In turn, such developments have triggered an influx of foreign capital flows and strengthened exchange rates in developing economies, including Indonesia.

At home, economic growth in Indonesia remains solid on the back of increasing domestic demand and positive export performance.  Private consumption is expected to strengthen in line with increasing mobility, growing consumer confidence and stronger purchasing power given lower inflation.  Investment activity continues, dominated by non-building investment.  Moreover, export performance remains positive.  As of March 2023, Indonesian non-oil and gas exports maintained solid growth on shipments of coal, electrical machinery and motor vehicles.  By destination country, non-oil and gas exports bound for China, the US and Japan were the main contributors.  By sector, strong growth is projected for the manufacturing industry, trade as well as information and communication.  Regionally, consumption is increasing in nearly all regions, accompanied by solid export performance in the Sulawesi-Maluku-Papua (Sulampua) region.  Consequently, national economic growth in 2023 is predicted with an upward bias towards the top end of the 4.5-5.3% range.

Indonesia's Balance of Payments (BOP) remains sound, thereby supporting external resilience. The current account is predicted to record a surplus in the first quarter of 2023, supported by a positive goods trade balance totalling USD12.3 billion.  The capital and financial account is also projected to record a surplus in the first quarter of 2023 in line with an influx of foreign capital inflows in the form of portfolio investment, which recorded a net inflow of USD4.7 billion in the first quarter of 2023.  Foreign capital inflows to portfolio investment persisted in April 2023, recording a net inflow of USD1.2 billion as of 14th April 2023.  Foreign capital inflows returned to Indonesia as global financial market uncertainty eased, accompanied by improving domestic economic conditions, such as solid economic growth, low inflation and attractive yields on financial assets for investment. The position of reserve assets in Indonesia increased to USD145.2 billion at the end of March 2023, equivalent to 6.4 months of imports or 6.2 months of imports and servicing government external debt, which is well above the international adequacy standard of around three months of imports. Positive BOP performance is expected to persist in 2023, with a manageable current account maintained in the range of a 0.4% surplus to a 0.4% deficit of GDP. Meanwhile, the capital and financial account is expected to amass a larger surplus, supported by foreign capital inflows in the form of FDI and portfolio investment.

The rupiah regained lost value in line with BI stabilisation measures.  The rupiah appreciated 1.38% (ptp) in value as of 17th April 2023 compared with the level at the end of March 2023, boosted by strong foreign capital inflows of portfolio investment. Year-to-date, the rupiah gained 5.26% on the level recorded at the end of December 2022, thus exceeding the rupee (0.93%), baht (0.71%) and peso (0.22%).  Moving forward, Bank Indonesia expects to maintain rupiah stability in line with the current account surplus and maintained foreign capital inflows, given the promising domestic economic growth outlook, low inflation and attractive yields on domestic financial assets for investment.  Furthermore, Bank Indonesia will continue strengthening rupiah stabilisation policy to control imported inflation and mitigate the contagion effect of global financial market uncertainty on rupiah exchange rates.  Rupiah stabilisation policy has also been strengthened by DHE management through the implementation of foreign currency term deposits (TD) in accordance with market mechanisms.

Inflation continues to fall, thus supporting economic stability. Monthly Consumer Price Index (CPI) inflation stood at 0.18% (mtm) in the reporting period, which is lower than historical trends at the beginning of Ramadan, thereby bringing annual inflation down to 4.97% (yoy) from 5.47% (yoy) one month earlier.  Broad-based declines were recorded across all components, namely core inflation, volatile food (VF) inflation and administered prices (AP) inflation.  Core inflation in March 2023 continued to moderate from 3.09% (yoy) to 2.94% (yoy) in line with lower inflation expectations and milder imported inflation pressures, coupled with adequate aggregate supply in response to the increasing demand for goods and services.  Meanwhile, VF inflation fell from 7.62% (yoy) in February 2023 to 5.83% (yoy) in the reporting period in line with the positive impact of a pre-emptive and forward-looking monetary policy response instituted by Bank Indonesia, together with close synergy between Bank Indonesia and the (central and regional) Government through the Central and Regional Inflation Control Teams (TPIP and TPID) as well as the National Movement for Food Inflation Control (GNPIP) in various regions. Bank Indonesia, therefore, is confident that core inflation will remain under control in the 3.0%±1% target corridor in 2023 and CPI inflation will return to the 3.0%±1% target sooner than previously expected.  Furthermore, Bank Indonesia will continue strengthening coordination with the (central and regional) Government to control inflation.

Liquidity conditions in the banking industry and economy remain ample to revive lending/financing and bolster economic growth.  In line with the accommodative liquidity policy stance of Bank Indonesia, the ratio of liquid assets to third-party funds was still high in March 2023 at 28.91%.  Liquidity in the economy also remains ample, as reflected by growth of the narrow money (M1) and broad money (M2) monetary aggregates at 4.8% (yoy) and 6.2% (yoy) respectively.  In turn, loose liquidity conditions support the availability of funds for the banking industry to disburse loans/financing to businesses and direct interest rates that are conducive to economic growth. In the money market, the IndONIA rate as of 17th April 2023 remained low at 5.65%.  The yield of short-term SBN decreased 20bps on the level at the end of February 2023 to 6.24%, while long-term yields were more stable.  The 1-month term deposit rate in March 2023 was also recorded low at 4.10%, down 2bps on the level in February 2023.  Meanwhile, the average lending rate in March 2023 was still conducive to support demand, namely at 9.38%, up 4bps on the previous month.  Bank Indonesia will continue ensuring adequate liquidity to maintain financial system stability and revive lending/financing for the national economic recovery.

The bank intermediation function continues to increase, thereby maintaining economic recovery momentum.  Growth of loans disbursed by the banking industry in March 2023 remained high at 9.93% (yoy).  Intermediation in the sharia banking industry accelerated to 19.43% (yoy) in March 2023.  Robust MSME credit growth persisted, reaching 8.63% (yoy) in March 2023, supported by the realisation of People's Business Loans (KUR) that totalled Rp30.31 trillion at the end of March 2023.  Strong credit growth was driven on the supply side by adequate liquidity and loose lending standards in the banking industry, while demand for lending/financing was supported by corporate and household demand in line with corporate and MSME performance as well as maintained household consumption.  Bank Indonesia will continue reviving bank intermediation by prioritising Slow Starters, People's Business Loans (KUR) and green finance to accelerate the economic recovery.  Taking into account recent developments and strong synergy, credit growth in 2023 is consistent with the previous projection in the 10-12% range.

Financial system resilience remains solid, particularly the banking industry, in terms of capital, credit risk and liquidity.  The Capital Adequacy Ratio (CAR) in the banking industry was still high in February 2023 at 26.02%.  Strong capital effectively contributed to low NPL ratios of 2.58% (gross) and 0.75% (nett) in February 2023.   Liquidity in the banking industry in March 2023 was maintained, supported by 7.00% (yoy) growth of third-party funds.  BI stress tests further confirmed solid bank resilience in Indonesia.  Meanwhile, Bank Indonesia will continue strengthening synergy with the Financial System Stability Committee to mitigate various domestic and global macroeconomic risks that could undermine financial system resilience.

Digital economic and financial transactions are increasing, underpinned by a fast and reliable payment system. The value of electronic money transactions in March 2023 grew 11.39% (yoy) to reach Rp34.1 trillion.  The value of digital banking transactions grew 9.88% (yoy) to reach Rp4,944.1 trillion and the value of transactions using ATM cards, debit cards and credit cards increased 0.45% (yoy) to reach Rp707.1 trillion.  Moving forward, Bank Indonesia expects digital economic and financial transactions to continue growing as public activity increases combined with the expansion and optimisation of the user ecosystem.  In conjunction with the Coordinating Ministry of Economic Affairs of the Republic of Indonesia and relevant associations, Bank Indonesia is hosting the Indonesia Digital Economy and Finance Festival (FEKDI) 2023 from 7-10th May 2023 in Jakarta as part of the ASEAN Chairmanship activities in 2023, showcasing various digital initiatives and innovations in Indonesia. Meanwhile, total currency in circulation in March 2023 increased 6.73% (yoy) to reach Rp948.8 trillion. Bank Indonesia will continue ensuring the availability of quality rupiah currency fit for circulation throughout the territory of the Republic of Indonesia through the SERAMBI program by strengthening public cash services offered by the banking industry and Bank Indonesia, while providing facilities to exchange currency at busy locations and strategic destinations on various routes for the annual exodus of Muslims returning to their family homes to celebrate Eid-ul-Fitr (mudik).


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Halaman ini terakhir diperbarui 4/20/2023 9:55 AM
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