The BI Board of Governors Meeting agreed on 16 - 17th July 2024 to hold the BI-Rate at 6.25%, while also maintaining the Deposit Facility (DF) rate and Lending Facility (LF) rate at 5.50% and 7.00% respectively. This decision is consistent with the pro-stability focus of monetary policy, namely as a pre-emptive and forward-looking measure to maintain inflation within the 2.5%±1% target corridor in 2024 and 2025. In the near term, the focus of monetary policy is oriented towards strengthening the effectiveness of Rupiah stabilisation measures and attracting foreign capital inflows. Meanwhile, Bank Indonesia will maintain pro-growth macroprudential and payment system policies to foster sustainable economic growth. Bank Indonesia will hold an accommodative macroprudential policy stance to revive bank lending/financing to businesses and households. Payment system policy is directed towards bolstering reliable infrastructure and reinforcing the structure of the payment system industry, while expanding acceptance of payment system digitalisation.
Bank Indonesia has, therefore, strengthened its policy mix of monetary, macroprudential and payment system to maintain stability and support sustainable economic growth against a backdrop of persistently elevated global financial market uncertainty through the following measures:
- Strengthening the pro-market monetary operations strategy to enhance monetary policy effectiveness in terms of Rupiah stabilisation by:
- Strengthening the interest rate structure of the Rupiah money market to maintain attractive yields and increase portfolio inflows to domestic financial assets for investment.
- Optimising Bank Indonesia Rupiah Securities (SRBI), Bank Indonesia Foreign Exchange Securities (SVBI) and Bank Indonesia Foreign Exchange Sukuk (SUVBI).
- Stabilising the Rupiah through foreign exchange market intervention with a focus on spot and Domestic Non-Deliverable Forward (DNDF) transactions, as well as government securities (SBN) in the secondary market.
- Strengthening the competitive SBN term-repo and FX swap transaction strategies to maintain adequate liquidity in the banking industry.
- Strengthening prime lending rate (PLR) transparency policy with a focus on interest rates by priority economic sector based on Macroprudential Liquidity Incentive policy (KLM) (Appendix), and
- Strengthening the innovation and acceptance of digital payment services as well as economic and financial inclusion for MSMEs, including consumer protection and literacy by hosting the Indonesia Digital Economy and Finance Festival (FEKDI) and Karya Kreatif Indonesia (KKI) 2024.
Policy coordination between Bank Indonesia and the Government is also constantly strengthened to mitigate the risks posed by persistently high global uncertainty. In terms of controlling inflation, Bank Indonesia strengthens policy coordination with the (central and regional) Government through the National Movement for Food Inflation Control (GNPIP) in various regions within the Central Government and Regional Government Inflation Control Teams (TPIP and TPID). Monetary and fiscal policy coordination is strengthened to maintain macroeconomic stability and bolster economic growth momentum. Furthermore, policy synergy between Bank Indonesia and the Financial System Stability Committee is also strengthened to maintain financial system stability and revive bank lending/financing to businesses. Bank Indonesia also continues strengthening international central bank cooperation, which includes payment system connectivity and local currency transactions (LCT), as well as promoting trade and facilitating investment in priority sectors through cooperation with the relevant institutions.
Global financial market uncertainty remains high despite a solid world economic outlook. Global economic growth in 2024 is forecast at 3.2% in line with the previous projection, primarily driven by the United States (US) and Europe. Robust US economic growth is supported by consumption and fiscal stimuli, while economic growth in Europe is expected to accelerate on the back of improving exports and investment. On the other hand, China's economy remains sluggish due to weak domestic demand. US inflation in June 2024 was also lower than projected given lower energy and housing inflation. This has triggered expectations of Federal Funds Rate (FFR) reductions earlier than previously projected at the end of 2024, despite persistently high 10-year US Treasury yields due to US Government budget deficit needs. Global financial market uncertainty remains high, accompanied by deep geopolitical tensions, thereby restricting capital flows to emerging market economies (EMEs). Such developments demand a strong policy response to mitigate the adverse impact of global uncertainty spillovers on emerging market economies, including Indonesia.
At home, economic growth in Indonesia remains solid, underpinned by domestic demand. GDP in the second quarter of 2024 was supported by household consumption and investment. Goods exports increased on higher exports of manufacturing and mining products, particularly metals and metalliferous ores as well as iron and steel, bound for Indonesia's major trading partners, including India and China. By sector, economic growth was primarily driven by the manufacturing industry, construction, as well as wholesale and retail trade. Spatially, however, solid economic growth is projected in most regions of the Indonesian archipelago, led by Sulawesi-Maluku-Papua (Sulampua), Bali-Nusa Tenggara (Balinusra) and Kalimantan. Solid economic growth is anticipated in the third and fourth quarters of 2024, boosted by the planned increase in fiscal stimuli from 2.3% to 2.7% of GDP, coupled with increasing exports on stronger demand in Indonesia's main trading partners. Consequently, economic growth in 2024 is projected in the 4.7-5.5% range. Bank Indonesia will continue strengthening synergy between macroprudential policy and the fiscal stimuli implemented by the Government in pursuit of sustainable economic growth, particularly from the demand side.
Indonesia's Balance of Payments (BOP) remains sound, thereby supporting external resilience. The current account deficit in the second quarter of 2024 is projected to remain narrow given a wider USD8.0 billion surplus recorded in the goods trade balance. Meanwhile, the capital and financial account is projected to maintain a surplus despite high global financial market uncertainty. Portfolio investment in the second quarter of 2024 is expected to record a net inflow totalling USD4.3 billion, which has been maintained in early Q3/2024 (as of 15th July 2024), posting a higher net inflow of USD4.4 billion. The position of foreign reserves at the end of June 2024 increased to USD140.2 billion, equivalent to 6.3 months of imports or 6.1 months of imports and servicing government external debt, which is well above the international adequacy standard of around 3 months of imports. Overall, BOP performance in 2024 is projected to be maintained, underscored by a low and manageable current account deficit in the 0.1%-0.9% of GDP range. On the other hand, the capital and financial account is forecast to record a surplus given increasing foreign capital inflows in the form of foreign direct investment (FDI) and portfolio investment in line with positive investor perception of the promising domestic economic outlook and attractive yields on financial assets for investment.
The Rupiah is tracking an appreciatory trend in response to the monetary policy mix instituted by Bank Indonesia to mitigate the impact of global spillovers. The Rupiah in July 2024 (as of 16th July 2024) appreciated 1.21% on the position recorded at the end of June 2024. The Rupiah regained lost value given Bank Indonesia's firm commitment to maintain Rupiah stability, accompanied by solid economic fundamentals in Indonesia. Consequently, the Rupiah has lost just 4.84% (ytd) of the value recorded at the end of December 2023, less severe than the depreciation experienced by the Philippine peso, Thai baht and South Korean won at 5.14%, 5.44% and 7.03%, respectively. Moving forward, the Rupiah exchange rate is projected to remain stable and tend to appreciate in line with attractive yields, low inflation and solid economic growth in Indonesia, as well as Bank Indonesia's firm commitment to stabilise the Rupiah, which will maintain foreign capital inflows. Furthermore, Bank Indonesia continues optimising the full panoply of monetary instruments available, which includes strengthening its pro-market monetary operations (MO) strategy through the SRBI, SVBI and SUVBI instruments. Moreover, Bank Indonesia will continue strengthening coordination with the Government, banking industry and businesses to support the effective implementation of instruments that retain the proceeds of natural resources exports in accordance with Government Regulation Number 36 of 2023 concerning the Foreign Exchange Proceeds of Exports and the Exploitation, Management and/or Processing of Natural Resources.
Inflation is falling and remains within the 2.5%±1% target corridor. Consumer Price Index (CPI) inflation in June 2024 was recorded at 2.51% (yoy), down from 2.84% in May 2024. Lower headline inflation was influenced by low core inflation and administered prices (AP) inflation, which were recorded low at 1.90% (yoy) and 1.68% (yoy), respectively. Meanwhile, volatile food (VF) inflation fell sharply in most Indonesian regions, which was recorded nationally at 5.96% (yoy), down from 8.14% (yoy) the month earlier. Significantly lower VF inflation was influenced by increasing food supply during the ongoing harvesting season, coupled with the positive impact of synergy to manage inflation between the TPIP/TPID teams through the GNPIP movement in various regions. Moving forward, Bank Indonesia is confident that CPI inflation in 2024 will remain under control and within the target corridor. Low core inflation is expected in line with anchored inflation expectations, massive economic capacity in response to domestic demand, low imported inflation in line with Rupiah stability, as well as the positive impact of digitalisation. Bank Indonesia also expects VF inflation to remain manageable, underpinned by inflation control synergy between Bank Indonesia and the (central and regional) Government. Furthermore, Bank Indonesia will continue strengthening its pro-stability monetary policy stance and bolstering policy synergy with the Government to maintain inflation in 2024 and 2025 within the 2.5%±1% target range.
Bank Indonesia continues optimising various pro-market monetary instruments, namely SRBI, SVBI and SUVBI, to strengthen Rupiah stability and achieve the inflation target. This policy also aims to accelerate money market deepening efforts and attract foreign capital inflows. As of 15th July 2024, the respective positions of SRBI, SVBI and SUVBI instruments stood at Rp775.45 trillion, USD1.82 billion and USD267 million. SRBI issuances have attracted portfolio inflows to Indonesia, as reflected by significant non-resident holdings of SRBI that totalled Rp220.35 trillion (28.42% of total outstanding) in the reporting period. The implementation of primary dealers (PD) since May 2024 has also strengthened SRBI effectiveness as a monetary instrument that supports Rupiah stability and inflation control. Moving forward, Bank Indonesia will continue optimising its various innovative pro-market instruments in terms of volume and attractive yields, strengthened by solid economic fundamentals, in pursuit of further portfolio inflows to domestic financial markets.
Monetary policy transmission is becoming more effective. The IndONIA money market reference rate is still moving within the BI-Rate range, recorded at 6.15% on 16th July 2024. SRBI rates remain attractive at 7.30%, 7.39% and 7.43% for tenors of 6, 9 and 12 months, respectively, in line with the higher short-term US Treasury yield compared with longer-term tenors. Meanwhile, the yields on SBN of 2 and 10-year tenors are relatively stable as of 16th July 2024 at 6.68% and 6.95%, respectively, despite high US Treasury yields and risk premiums in global financial markets. Liquidity in the banking industry remains ample in line with the additional Macroprudential Liquidity Incentives (MLI), expansionary monetary operations and portfolio inflows, in addition to a surge of third-party funds (TPF), thereby maintaining competitive interest rates in the banking industry. The 1-month term deposit rate and lending rate were also relatively stable in June 2024 at 4.63% and 9.25%, respectively.
Credit growth remained high in the second quarter of 2024 at 12.36% (yoy), driven by strong supply and demand. On the supply side, bank lending appetite was maintained in line with strong TPF growth at 8.45% (yoy) recorded in the second quarter of 2024, the ongoing bank strategy to reallocate liquid assets to credit, accompanied by policy support from Bank Indonesia in the form of Macroprudential Liquidity Incentives policy (KLM). On the demand side, loan growth is supported by corporate demand in line with persistently high sales performance and strong repayment capacity. Meanwhile, household demand for loans remains stable, particularly among the middle and upper classes, in line with maintained income expectations. Credit growth remains high in most economic sectors, particularly the manufacturing industry, trade and transportation. By loan type, credit growth is primarily supported by investment loans, working capital loans and consumer loans, growing 15.09% (yoy), 11.68% (yoy) and 10.80% (yoy), respectively, in the second quarter of 2024. Furthermore, sharia financing maintained high growth at 13.61% (yoy), while MSME loans increased 5.68% (yoy). Consequently, Bank Indonesia projects credit growth to increase towards the upper bound of the 10-12% range in 2024.
Financial system resilience remains solid. Bank liquidity remained adequate in the second quarter of 2024, as reflected by a high ratio of liquid assets to third-party funds (LA/TPF) at 25.36%. Non-performing loans (NPL), as a proxy of credit risk, were also low in May 2024, as indicated by NPL ratios of 2.34% (gross) and 0.79% (nett). Solid banking industry resilience is also supported by bank prudence when disbursing loans/financing and mitigating credit risk, including the risks posed by the discontinuation of the credit restructuring stimulus introduced to help alleviate the deleterious impact of the Covid-19 pandemic on borrowers. Resilience was also supported by a high Capital Adequacy Ratio (CAR) of 26.14% and a high ratio of provisions for impairment losses to total NPL in the banking industry. Banking industry resilience was further bolstered by sound corporate and household repayment capacity, as confirmed by the latest BI stress tests. Moving forward, Bank Indonesia will continue strengthening synergy with KSSK to mitigate various risks that could potentially disrupt financial system stability.
Digital economic and financial transactions remained solid in the second quarter of 2024, supported by secure, seamless and reliable payment systems. On the wholesale or high-value side, BI-RTGS transactions increased 13.42% (yoy) to reach Rp42,008.08 trillion. On the other hand, the volume of retail transactions processed through BI-FAST increased 67.79% (yoy) to 785.95 million transactions. The volume of digital banking transactions was recorded at 5,363.00 million, growing 34.49% (yoy), while the volume of electronic money transactions grew 39.24% (yoy) to reach 3,958.53 million. QRIS transactions enjoyed impressive 226.54% (yoy) growth, with QRIS users and merchants totalling 50.50 million and 32.71 million, respectively. On the other hand, the volume of card-based payments using ATM/debit cards retreated 8.42% (yoy) to 1,759.92 million transactions. In contrast, credit card transactions increased 20.92% (yoy) to reach 114.31 million. In terms of Rupiah currency management, total currency in circulation grew 6.61% (yoy) to Rp1,057.8 trillion.
Payment system infrastructure stability has been maintained, supported by broader interconnection in the payment system industry. In terms of infrastructure, Bank Indonesia maintains a secure, seamless and reliable payment system, supported by adequate liquidity and operational functionality. Regarding the structure of the payments industry, payment system interconnection and the digital economy and finance ecosystem continue to expand. Payment transactions based on the National Open API Payment Standard (SNAP), which facilitates interconnection in the payment system, continue to grow as cooperation between industry players expands. In addition, Bank Indonesia will ensure adequate availability of Rupiah currency fit for circulation in suitable denominations throughout all regions of the Republic of Indonesia, including frontier, outermost and remote regions.
