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Economic and Monetary Policy Department​

8/29/2023 12:00 AM
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Monetary Policy Review - August 2023


MPR-August_2023.JPGThe BI Board of Governors Meeting agreed on 23rd and 24th August 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 to maintain the BI7DRR rate at 5.75% is consistent with the monetary policy stance to control inflation within the 3.0%±1% target this year and 2.5%±1% in 2024. The policy focus is oriented towards strengthening rupiah stability to mitigate the contagion effect of global financial market uncertainty.  Meanwhile, to foster domestic economic growth, Bank Indonesia is still orienting accommodative macroprudential policy towards strengthening the effectiveness of liquidity incentives offered to the banking industry to revive lending/financing with a focus on downstreaming, housing, tourism as well as green and inclusive finance.  Furthermore, Bank Indonesia is also accelerating payment system digitalisation to expand digital economic and financial inclusion.  Strengthening the monetary, macroprudential and payment system policy mix is also still directed towards maintaining stability and supporting sustainable economic growth.

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

  1. Strengthening rupiah stabilisation policy through foreign exchange market intervention with a focus on spot and Domestic Non-Deliverable Forward (DNDF) transactions.
  2. Issuing Bank Indonesia Rupiah Securities (SRBI) as (contractionary) pro-market MO instruments to strengthen money market deepening efforts, attract foreign capital inflows in the form of portfolio investment and optimise the SBN assets held by Bank Indonesia as underlying (Appendix 1).
  3. Continuing prime lending rate (PLR) transparency policy with a focus on interest rates in the housing and tourism sectors (Appendix 2).
  4. Accelerating payment system digitalisation to expand the digital economy and finance ecosystem by:
    1. Implementing QRIS Withdrawal, Transfer and Deposit (TUNTAS) in conjunction with the industry, and 
    2. ​Piloting cross-border QRIS with Singapore.
  5. Ensuring a successful ASEAN Chairmanship in 2023, especially through the finance track, with a focus on five salient achievements, namely the policy mix, local currency transactions, regional payment connectivity, financial inclusion and strengthening the ASEAN finance process.

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 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 is increasing again.  A rebalancing in the composition of global economic growth in 2023 is gaining traction, with growth still forecast at 2.7%.  On one hand, lower economic growth in China is a corollary of weaker economic confidence and high household debt, thus eroding consumption and property sector performance, with an impact on investment.  Economic moderation in Europe has been triggered by escalating geopolitical tensions between Russia and Ukraine.  On the other hand, improving consumption on the back of higher wages and excess saving has boosted economic growth in the US beyond the previous projection.  Meanwhile, inflationary pressures in advanced economies are persistently high in response to solid economic performance and tight labour markets, accompanied by milder inflationary pressures in developing economies.  Such conditions are expected to perpetuate monetary policy rate hikes in advanced economies, including the Federal Funds Rate (FFR).  Consequently, global financial market uncertainty is on the rise again, with capital flows to emerging​ economies becoming more selective.  Currency pressures in emerging 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.  Economic growth in the second quarter of 2023 was recorded at 5.17% (yoy), up from 5.04% (yoy) in the previous period.  The main sources of growth are strong domestic demand in line with faster household and government consumption growth, coupled with increasing investment, despite declining export performance due to global economic headwinds and softer international commodity prices.  All economic sectors are enjoying positive growth, led by services sectors, such as Transportation and Logistics, Accommodation and Food Service Activities as well as Wholesale and Retail Trade.  Spatially, most regions are recording higher growth, particularly in the Sulawesi-Maluku-Papua (Sulampua) region.  The latest developments also point to solid economic growth in the third quarter of 2023, as reflected by retail sales, the Manufacturing Purchasing Managers Index (PMI) and income expectations.  National economic growth in 2023, therefore, is still projected in the 4.5-5.3% range. 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. In the second quarter of 2023, the current account recorded a narrow deficit as commodity prices fell and the global economy moderated, with domestic demand increasing.  Meanwhile, the capital and financial account deficit remains manageable against a backdrop of elevated global financial market uncertainty.  The latest developments in the third quarter of 2023 indicate a trade surplus recorded in July 2023 totalling USD1.3 billion.  Furthermore, foreign capital inflows to domestic financial markets were maintained, with portfolio investment recording a net inflow of USD0.2 billion on 22nd August 2023 (qtd).  The position of reserve assets at the end of July 2023 remained high at USD137.7 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) and portfolio investment in line with positive investor perception concerning the national economic outlook.

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 August 2023 (as of 23rd August 2023) to lose 1.41% (ptp) in value compared with the level at the end of July 2023. Year to date, however, the rupiah has gained 1.78% in value from the position recorded at the end of December 2022 thereby exceeding exchange rate appreciation in other developing economies, including the Indian rupee (0.07%), while the Thai baht and Philippine peso experienced 1.31% and 1.77% 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, the effective implementation of natural resources export proceeds retention instrument in accordance with Government Regulation Number 36 of 2023, as well as issuing pro-market (monetary operation) MO instruments to strengthen money market deepening efforts and attract foreign capital inflows in the form of portfolio investment.

Inflationary pressures continue to ease, becoming more manageable in the 3.0%±1% target corridor.  Low Consumer Price Index (CPI) inflation was recorded in July 2023 at 3.08% (yoy), down from 3.52% (yoy) in June 2023.  Milder inflationary pressures were observed across all components. Core inflation decreased to 2.43% (yoy) in the reporting period from 2.58% (yoy) the month earlier in line with managed demand, anchored inflation expectations as well as low imported inflation.  In fact, volatile food (VF) recorded 0.03% (yoy) deflation in July 2023 after recording 1.20% (yoy) inflation in June 2023 given the successes of GNPIP in various regions.  Administered prices (AP) inflation continued falling to 8.42% (yoy) from 9.21% (yoy) in the reporting period. Lower inflation is the positive outcome of monetary policy consistency and close synergy to control inflation between Bank Indonesia and the (central and regional) Government through the Central and Regional Inflation Control Teams (TPIP and TPID). 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.

Liquidity in the banking industry remains ample.  In line with the accommodative liquidity policy stance of Bank Indonesia, the ratio of liquid assets to third-party funds was still high in July 2023 at 26.57%.  Interest rates in the banking industry remain low.  ​​​​​In the money market, the IndONIA rate as of 23rd August 2023 was still low at 5.59%.  In the banking industry, the 1-month term deposit rate and average lending rate in July 2023 were also recorded low at 4.18% and 9.35% respectively. Bank Indonesia will continue ensuring adequate liquidity in the banking industry to strengthen monetary policy transmission, maintain monetary and financial system stability, as well as revive lending/financing to businesses.

Bank lending/financing is accelerating across all segments and loan types.  Loans disbursed by the banking industry in July 2023 grew 8.54% (yoy), up from 7.76% (yoy) the month earlier, primarily driven by Social Services, Mining and Corporate Services.  Such developments were influenced by the supply of credit in line with loose lending standards, which are accommodative to drive faster credit growth.  In addition, the demand for loans is high in line with stronger economic growth. Intermediation in the sharia banking industry increased 17.55% (yoy) in July 2023, primarily driven by working capital.  In the MSME segment, the growth trend was maintained, achieving 7.59% (yoy) in July 2023, predominantly boosted by the micro segment.  Bank Indonesia will strengthen the effectiveness of macroprudential policy incentives in coordination with the Government, banking industry and business community to revive bank lending/financing to 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 June 2023 at 26.74%.  Credit risk was also mitigated effectively, as reflected by low NPL ratios of 2.44% (gross) and 0.77% (nett) in June 2023.   Liquidity in the banking industry in July 2023 was maintained, supported by 6.62% (yoy) growth of third-party funds (TPF).  Bank Indonesia stress tests further confirmed solid bank resilience in Indonesia.  Meanwhile, 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 July 2023 increased 10.50% (yoy) to reach Rp39.21 trillion, while the value of digital banking transactions grew 15.50% (yoy) to Rp5,035.37 trillion.  The value of QRIS transactions continues enjoying strong 84.50% (yoy) growth, amounting to Rp18.01 trillion, with users and merchants totalling 38.24 million and 27.51 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 Rp707.90 trillion in the reporting period, down 4.26% (yoy). In terms of rupiah currency management, total currency in circulation in July 2023 grew 4.14% (yoy) to Rp951.13 trillion. Bank Indonesia continues ensuring the availability of rupiah currency fit for circulation in all regions of the Republic of Indonesia, which includes programs to circulate the rupiah in 3T (outermost, frontier, remote) regions through mobile cash services, cash deposit services and the Sovereign Rupiah Expedition.



Contact Center Bank Indonesia Bicara: (62 21) 131
e-mail :
Jam operasional Senin s.d. Jumat Pkl. 08.00 s.d 16.00 WIB​

Halaman ini terakhir diperbarui 8/30/2023 6:38 AM
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