The BI Board of Governors Meeting agreed on 18th and 19th October
2021 to hold the BI 7-Day Reverse Repo Rate at 3.50%, while also
maintaining the Deposit Facility (DF) rates at 2.75% and Lending
Facility (LF) rates at 4.25%. The decision is consistent with the need
to maintain exchange rates and financial system stability amid projected
low inflation and efforts to revive economic growth. In addition, Bank
Indonesia continues to optimise its policy mix towards maintaining
macroeconomic and financial system stability, while supporting national
economic recovery efforts through the following measures:
- Maintaining
rupiah exchange rate policy to preserve stability in line with the
currency's fundamental value and market mechanisms.
- Continuing
the strengthening strategy for monetary operations to reinforce the
effectiveness of the accommodative monetary policy stance.
- Maintaining
an accommodative macroprudential policy stance by holding: (i) the
Countercyclical Capital Buffer (CCyB) at 0%, (ii) the Macroprudential
Intermediation Ratio (MIR) in the 84-94% range with a lower disincentive
parameter of 80% (1st September-31st December 2021) and 84% (1st
January 2022), and (iii) the Macroprudential Liquidity Buffer (MLB) at
6% with repo flexibility at 6%, and the Sharia Macroprudential Liquidity
Buffer (SMLB) at 4.5% with repo flexibility at 4.5%.
- Maintaining
looser downpayment requirements on automotive loans/financing at 0% for
all types of new motor vehicle, while applying risk management and
prudential principles, effective from 1st January 2022 until 31st December 2022.
- Maintaining
a looser Loan/Financing-to-Value (LTV/FTV) ratio on property
loans/financing to a maximum of 100% on all property types (landed
house, apartment and shop/office house) for banks meeting specific
NPL/NPF criteria, while removing regulations stipulating the gradual
liquidation of partially prepaid property to revive credit growth in the
property sector in line with risk management and prudential principles,
effective from 1st January 2022 until 31st December 2022.
- Strengthening
prime lending rate (SBDK) transparency in the banking industry by
expanding the assessment of policy rate transmission to prime lending
rates and interest rates on new loans in the banking industry by
economic sector/subsector (Appendix).
- Implementing the first
phase of BI-FAST, starting in the second week of December 2021, based on
policies covering participation, provision of infrastructure, maximum
transaction value and price schemes, to be announced on 22nd October 2021.
- Extending credit card policy as follows: (a) Minimum payment equal to 5% of the outstanding balance until 30th June 2022. (b) Late payment penalty equal to 1% of the outstanding balance or a maximum of Rp100,000 until 30th June 2022.
- Accelerating
local currency settlement (LCS) implementation to facilitate trade and
investment with partner countries by strengthening synergy with the
Government, Financial System Stability Committee, banking industry and
corporate sector.
- Expanding support for the Government by
facilitating trade and investment promotion with partner countries. In
October and November 2021, promotional activities will be organised in
Japan, United Arab Emirates, China, Australia, United States, UK,
Russia, Bulgaria and Singapore.
Bank
Indonesia will also continue to strengthen policy coordination with the
Government and Financial System Stability Committee to maintain
financial system stability and revive bank lending to the corporate and
priority sectors, which will help catalyse economic growth and exports
as well as economic and financial inclusion.
The global economic recovery is proceeding slower than previously projected.
Economic growth projections for the United States, China and Japan have
been downgraded due to the impact of the highly contagious Delta
variant of Covid-19, coupled with supply chain disruptions and global
energy limitations. In contrast, a faster economic recovery in Europe
remains intact, thus offsetting global moderation. In September 2021,
several early indicators trended downwards, including the Purchasing
Managers Index (PMI), retail sales and consumer confidence. Therefore,
Bank Indonesia revised its global economic growth projection for 2021 to
5.7% from 5.8%. World trade volume and international commodity prices
continue to rise, thus supporting the export outlook in developing
economies. The global economic recovery is predicted to endure in 2022
but the impact of supply chain disruptions and energy limitations demand
vigilance. Global financial market uncertainty has eased slightly
despite concerns of tighter global monetary policy sooner than
previously expected in line with persistently higher inflation. Such
conditions are influencing global flows of portfolio investment to
developing economies, particularly countries offering attractive
financial assets for investment and promising economic conditions.
Domestic economic gains are enduring.
In the third quarter of 2021, economic performance is expected to
continue improving on the back of solid exports as well as increasing
consumption and investment activities in line with greater public
mobility. By sector, the Manufacturing Industry, Mining, Trade as well
as Information and Communications continue to perform well. Spatially,
the main contributors to the domestic economic recovery include the
regions of Sulampua (Sulawesi, Maluku, Papua), Java, Sumatra and
Kalimantan, driven by exports. Several early indicators in October 2021
pointed to ongoing economic improvements, namely retail sales, consumer
expectations, Manufacturing PMI, payment transactions via the National
Clearing System (SKNBI) and Bank Indonesia – Real Time Gross Settlement
(BI-RTGS) system, as well as exports. Bank Indonesia is anticipating
stronger national economic growth through to the fourth quarter, with
overall growth for 2021 projected at 3.5-4.3%. In addition, economic
growth is expected to accelerate in 2022 in response to greater public
mobility given the faster vaccination rollout, persistently strong
export performance, broader reopening of priority sectors and ongoing
policy stimuli.
A solid Balance of Payments (BOP) is predicted in Indonesia.
The current account is expected to record a positive balance in the
third quarter of 2021, bolstered by the largest trade surplus recorded
since the fourth quarter of 2009, totalling USD13.2 billion.
Performance is supported by higher exports of major commodities, such as
crude palm oil (CPO), coal, organic chemicals and metal ores, despite
higher imports, mainly raw materials, to fuel the domestic economic
recovery. Meanwhile, the capital and financial account surplus is
predicted to increase on foreign capital inflows in the form of foreign
direct investment and portfolio investment. In the third quarter of
2021, portfolio investment recorded a net inflow of USD1.3 billion,
followed by an inflow of USD0.2 billion from 1st-15th
October 2021. At the end of September 2021, the position of reserve
assets increased to USD146.9 billion, equivalent to 8.9 months of
imports or 8.6 months of imports and servicing government external debt,
which is well above the 3-month international adequacy standard.
Looking ahead, Bank Indonesia projects a lower current account deficit
in the 0.0-0.8% of GDP range in 2021 and a manageable current account
deficit in 2022, thus supporting external sector resilience in
Indonesia.
Slightly lower global financial market uncertainty fed through to a stronger rupiah. As of 18th
October 2021, the rupiah appreciated 1.44% (ptp) and 0.33% on average
compared with the September 2021 level. Rupiah appreciation is supported
by ongoing foreign capital inflows in line with the positive perception
of investors concerning the domestic economic recovery, attractive
domestic financial assets for investment, maintained foreign exchange
supply domestically and stabilisation measures implemented by Bank
Indonesia. Compared with the level at the end of 2020, therefore, the
rupiah has depreciated by just 0.43% (ytd) in 2021 (as of 18th
October), which is relatively lower than the depreciation experienced
in several other peer countries, including India, Malaysia and the
Philippines. Bank Indonesia continues to strengthen rupiah exchange
rate stabilisation policy in line with the currency's fundamental value
and market mechanisms through effective monetary operations and adequate
market liquidity.
Inflation remains low, thereby reinforcing economic stability.
In September 2021, the Consumer Price Index (CPI) recorded deflation of
0.04% (mtm), bringing headline inflation to 0.80% (ytd). Annually, CPI
inflation stood at 1.60% (yoy), up marginally from 1.59% (yoy) in
August 2021. Core inflation remains low in line with compressed
domestic demand, maintained exchange rate stability and consistent Bank
Indonesia policy to anchor inflation expectations to the target
corridor. Milder inflationary pressures on volatile food stemmed from
adequate supply, contrasting a build-up of inflationary pressures on
administered prices as a corollary of higher tobacco excise duty.
Consequently, inflation in 2021 is projected below the midpoint of the
3.0%±1% target and within the target corridor in 2022. Bank Indonesia
is firmly committed to maintaining price stability and strengthening
policy coordination with the central and regional governments through
national and regional inflation control teams (TPI and TPID) to maintain
headline inflation within the target.
Liquidity
conditions remain very loose in line with Bank Indonesia's
accommodative monetary policy stance and the impact of synergy between
Bank Indonesia and the Government to support the national economic
recovery. Bank Indonesia has injected liquidity through
quantitative easing (QE) to the banking industry totalling Rp129.92
trillion in 2021 (as of 15th October 2021). In addition,
Bank Indonesia continues to purchase SBN in the primary market to fund
the 2021 State Revenue and Expenditure Budget (APBN), totalling Rp142.54
trillion (as of 15th October 2021), with Rp67.08 trillion
through primary auction and Rp75.46 trillion through greenshoe options
(GSO). The expansive monetary policy stance supports very loose
liquidity conditions in the banking industry, as reflected in September
2021 by a high ratio of liquid assets to deposits of 33.53%. On the
other hand, deposit growth has moderated to 7.69% (yoy), impacted by
recoveries of business activity and private consumption. Liquidity in
the economy has increased, as indicated by narrow (M1) and broad (M2)
money supply aggregates, which grew 11.2% (yoy) and 8.0% (yoy)
respectively in the reporting period, primarily driven by bank lending
to finance the national economic recovery.
Bank
Indonesia's decision to maintain a low policy rate, coupled with very
loose liquidity conditions in the banking industry, have prompted lower
lending rates despite ongoing rigidity. In the markets, the
overnight interbank rate and 1-month deposit rate have fallen 50bps and
171bps since September 2020 to 2.80% and 3.28% in September 2021. In
the credit market, the banking industry continues to lower prime lending
rates (PLR) and interest rates on new loans. Increasing economic
activity and public mobility have improved risk perception in the
banking industry, prompting lower interest rates on new loans. Bank
Indonesia expects the banking industry to continue lowering lending
rates as part of the joint efforts to revive lending to the corporate
sector.
Financial system resilience is solid, accompanied by a gradual revival of the bank intermediation function.
The Capital Adequacy Ratio (CAR) in the banking industry remained high
in August 2021 at 24.38%, with persistently low NPL ratios of 3.35%
(gross) and 1.08% (nett). Stoked by growing demand for corporate and
consumptive loans in response to greater public mobility, the bank
intermediation function expanded 2.21% (yoy) in September 2021. On the
supply side, the banking industry relaxed lending standards in line with
lower risk perception, coupled with loose liquidity conditions and
lower interest rates on new loans. All loan types recorded positive
growth, led by consumer loans and working capital loans, while housing
loans recorded higher growth at 8.67% in September 2021. Similarly,
growth of MSME loans reached 2.97% (yoy), thus demonstrating further
MSME sector improvements. Bank Indonesia will maintain an accommodative
macroprudential policy stance to revive bank lending. Therefore,
credit growth in 2021 is projected in the 4-6% range with deposit growth
of 7-9%.
Bank Indonesia continues to expedite payment system digitalisation and accelerate the national digital economy and finance.
Bank Indonesia is accelerating various payment system digitalisation
programs, including QRIS expansion, the National Open API Payment
Standard (SNAP) and regulatory reforms, as well as BI-FAST
implementation. Digital economic and financial transactions continue to
proliferate given greater public acceptance and growing public
preference towards online retail as well as the expansion of digital
payments and digital banking. The value of e-money transactions
increased 45.05% (yoy) to Rp209.81 trillion in the third quarter of 2021
and is projected to grow 38.75% (yoy) to Rp284 trillion overall in
2021. Similarly, the value of digital banking transactions increased
46.72% (yoy) to Rp28,685.48 trillion in the third quarter of 2021 and is
projected to grow 43.04% (yoy) to Rp39,130 trillion overall in 2021.
Bank Indonesia continues to strengthen policy coordination with the
Government in relation to trialling social aid program (bansos)
digitalisation, while optimising and accelerating bansos disbursements.
On the cash side, currency in circulation in September 2021 grew 10.44%
(yoy) to reach Rp841.73 trillion. Bank Indonesia continues to ensure
cash availability in all regions of Indonesia, while strengthening the
cash distribution strategy and reopening cash services based on
prevailing public activity restrictions (PPKM) in each respective
region.