The BI Board of Governors Meeting agreed on 19th-20th March 2024 to hold the BI-Rate at 6.00%, while also maintaining the Deposit Facility (DF) rate and Lending Facility (LF) rate at 5.25% and 6.75% respectively. The decision to hold the BI Rate at 6,00% remains consistent with the pro-stability focus of monetary policy, namely to strengthen Rupiah stabilisation policy, and as a pre-emptive and forward-looking measure to maintain inflation within the 2.5%±1% target corridor in 2024. 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 will be oriented 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 mix of monetary, macroprudential and payment system policies to maintain stability and nurture sustainable economic growth through the following measures:
1. 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.
2. Strengthening the pro-market monetary operations strategy for effective monetary policy, which includes optimising Bank Indonesia Rupiah Securities (SRBI), Bank Indonesia Forex Securities (SVBI) and Bank Indonesia Forex Sukuk (SUVBI).
3. Deepening the money market and foreign exchange market by increasing the volume of repurchase agreement (repo) transactions and number of participants.
4. Strengthening prime lending rate (PLR) transparency policy with a focus on interest rates by economic sector (Appendix).
5. Strengthening various aspects of consumer protection in terms of product innovation through digital literacy campaigns, including QRIS Jelajah Indonesia, and expanding cross-border QRIS payment linkages.
Policy coordination between Bank Indonesia and the Government is also constantly improved to maintain macroeconomic stability and bolster economic growth. Bank Indonesia strengthens policy coordination with the (central and regional) Government and strategic partners, including the National Movement for Food Inflation Control (GNPIP) in various regions within the Central Government and Regional Government Inflation Control Teams (TPIP and TPID), as well as P2DD Teams to Accelerate and Expand the Electronification of Central and Regional Government Transactions. Furthermore, policy synergy between Bank Indonesia and the Financial System Stability Committee (KSSK) is also strengthened to maintain financial system stability and revive lending/financing to businesses, particularly those in priority sectors. Bank Indonesia is also strengthening and expanding international cooperation, which includes accelerating payment system connectivity and fostering local currency transactions (LCT).
Global economic recovery momentum remains intact despite persistently high financial market uncertainty. World economic growth in 2024 is forecast to reach 3.0%. Economic growth in the United States (US) remains solid, underpinned by domestic demand. Growth in India is also higher than previously expected due to government and private investment. Meanwhile, the economic outlook in China remains sluggish despite a moderate uptick on the previous projection as a corollary of increasing fiscal stimuli. International commodity prices are rising on the back of higher transportation costs triggered by deepening geopolitical tensions and tighter supply caused by inclement weather. Such developments are prolonging the global disinflation process, with inflation in advanced economies remaining above target. The Federal Funds Rate (FFR) is not expected to decrease until the second semester of 2024. Global financial market uncertainty is still high, as reflected by rising US Treasury (UST) yields in line with the long-term risk premia and inflation that remains above market expectations. This has led to broad-based US dollar appreciation, while impacting foreign capital inflows and intensifying currency pressures in emerging market economies (EMEs). Such conditions demand a strong policy response to mitigate the adverse impact of global spillovers, including in Indonesia.
At home, national economic growth in Indonesia is still solid. Domestic economic growth is supported by domestic demand in the form of household consumption and investment. Building investment exceeded the previous projection due to ongoing national strategic projects (PSN) in several regions along with private property developments spurred by government incentives. Household consumption and non-building investment were maintained yet must be nurtured to sustain the national economic recovery. Persistently strong domestic demand is reflected in several indicators, including the Consumer Confidence Index (CCI), Retail Sales Index (RSI) and Manufacturing Purchasing Managers Index (PMI), which remain in optimistic territory. Goods exports have an opportunity to improve given weaker demand from Indonesia's main trading partner countries, particularly in terms of crude palm oil (CPO), iron and steel as well as coal, while services exports posted solid growth, led by tourism. Consequently, economic growth in 2024 is projected within the 4.7-5.5% range. Furthermore, Bank Indonesia will continue strengthening synergy between macroprudential policy and the fiscal stimuli implemented by the Government to foster economic growth, particularly from the domestic demand side.
Indonesia's Balance of Payments (BOP) remains solid, thereby supporting external resilience. The current account (CA) outlook for the first quarter of 2024 has been impacted by a narrower surplus in the goods trade balance. In February 2024, the trade balance amassed a USD0.9 billion surplus, down from USD2.0 billion the month earlier. Meanwhile, foreign capital inflows, specifically portfolio inflows, were maintained, recording a net inflow of USD1.4 billion cumulatively as of 18th March 2024 since the beginning of the year, despite an outflow recorded in March 2024 triggered by elevated global financial market uncertainty. The position of reserve assets at the end of February 2024 remained high at USD144.0 billion, equivalent to 6.5 months of imports or 6.3 months of imports and servicing government external debt, which is well above the international adequacy standard of around 3 months of imports. Overall, Bank Indonesia forecasts a BOP surplus in 2024, underpinned by a low and manageable current account deficit in the 0.1%-0.9% of GDP range. Meanwhile, Bank Indonesia expects the capital and financial account surplus to persist on the back of foreign capital inflows given positive investor perception of the promising domestic economic outlook along with attractive yields on financial assets for investment.
Rupiah stability has been maintained in line with the stabilisation policy instituted by Bank Indonesia. The Rupiah has remained relatively stable in March 2024 (as of 19th March 2024) in response to the stabilisation policy implemented by Bank Indonesia and despite a rebalancing of foreign capital flows in the domestic financial markets in line with persistently high global financial market uncertainty. Consequently, the Rupiah lost 2.02% in value against the level recorded at the end of December 2023, nevertheless outperforming the Malaysian ringgit, South Korean won and Thai baht that depreciated 3.02%, 3.87% and 5.39% respectively. Moving forward, Rupiah stability will be maintained, while tracking an appreciating trend as foreign capital inflows return to domestic financial markets in line with positive investor perception regarding the promising economic outlook in Indonesia. Meanwhile, Bank Indonesia stabilisation policy and optimisation of the pro-market monetary operations strategy through the SRBI, SVBI and SUVBI instruments will further support the prospect of Rupiah appreciation. 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 (PP DHE SDA) concerning the Foreign Exchange Proceeds of Exports and the Exploitation, Management and/or Processing of Natural Resources.
Inflation has been maintained within the 2.5%±1% target corridor. Consumer Price Index (CPI) inflation in February 2024 was recorded at 2.75% (yoy), supported by low core inflation at 1.68% (yoy) and administered prices (AP) inflation that fell to 1.67% (yoy). Conversely, volatile food (VF) inflation increased to 8.47% (yoy) from 7.22% (yoy) the month earlier, primarily edged up by rice and red chilis. Moving forward, Bank Indonesia is confident that headline 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 structural factors relating to digitalisation. Bank Indonesia also expects VF inflation to fall as production increases at the onset of the harvesting season, supported by inflation control synergy with the TPIP and TPID teams through the GNPIP movement in various regions, thereby supporting efforts to maintain overall price stability. Bank Indonesia will continue strengthening pro-stability monetary policy and increasing policy synergy with the (central and regional) Government to manage inflation in 2024 within the 2.5%±1% target range.
Bank Indonesia continues strengthening its monetary policy response and innovation to increase policy effectiveness in terms of controlling inflation and maintaining Rupiah stability. To that end, Bank Indonesia continues optimising various pro-market monetary instruments issued in 2023, namely SRBI, SVBI and SUVBI, to support money market deepening efforts and attract capital inflows. As of 19th March 2024, the respective positions of SRBI, SVBI and SUVBI instruments stood at Rp409.38 trillion, USD2.31 billion and USD387 million. The SRBI, SVBI and SUVBI vehicles issued by Bank Indonesia are strengthening money market deepening efforts and attracting foreign capital inflows to Indonesia. This is reflected by non-resident holdings of SRBI totalling Rp85.02 trillion (20.77% of total outstanding). Moving forward, the various innovative financial instruments issued by Bank Indonesia are expected to continue strengthening the external resilience of the Indonesian economy from the impact of global spillovers.
Monetary policy transmission remains effective. The IndONIA money market reference rate is moving within the BI-Rate range, recorded at 5.93% on 18th March 2024. SRBI rates remain attractive at 6.68%, 6.69%, and 6.87% for tenors of 6, 9 and 12 months respectively (as of 15th March 2024), thereby supporting SRBI effectiveness as a pro-market monetary instrument. Meanwhile, the banking industry maintained competitive interest rates given adequate liquidity in the banking system and PLR transparency policy to increase interest rate efficiency in the banking industry. Accordingly, the 1-month term deposit rate and lending rate improved in February 2024 to 4.52% and 9.28% respectively. Meanwhile, the yields on SBN of 2 and 10-year tenors were comparatively stable despite persistently high global financial market uncertainty.
Loans disbursed by the banking industry continue tracking an upward trend, supported by efforts to strengthen economic growth. Credit growth in February 2024 was recorded at 11.28% (yoy), primarily driven by loans extended for agriculture, mining, construction, trade, social services and corporate services. On the supply side, high credit growth was attributable to maintained lending appetite in the banking industry as a corollary of solid capital capacity and ample liquidity. This was reflected by a high ratio of liquid assets to third-party funds (LA/TPF) at 27.41% and supported by Macroprudential Liquidity Incentives Policy (KLM) from Bank Indonesia. Pursuing credit growth targets in 2024 against 5.66% (yoy) growth of third-party funds, banks continue to reallocate assets and optimise the pricing of funding. Banks are also optimising other sources of funds, including loans, issuing long-term debt securities and initiating rights issues. On the demand side, loan growth is supported by positive corporate and household sector performance, which is expected to continue improving after the recent general election. By loan type, credit growth was primarily supported by investment loans, working capital loans and consumer loans, growing 11.82% (yoy), 12.04% (yoy) and 9.70% (yoy) respectively. Furthermore, sharia financing maintained high growth at 15.89% (yoy) in February 2024, while MSME loans increased by 8.85% (yoy). Moving forward, Bank Indonesia expects credit growth to increase in the 10-12% range in 2024. Bank Indonesia will also continue strengthening the effectiveness of accommodative macroprudential policy and increasing synergy with the Government, financial authorities, government ministries/agencies, the banking industry and businesses. Seeking to foster new loan disbursements, Bank Indonesia is strengthening the implementation of KLM by optimising available liquidity incentives and expanding the scope of priority sectors with a large contribution to financing national economic growth.
Banking industry resilience remains solid. Bank liquidity remains adequate, as reflected by a high ratio of liquid assets to third-party funds (LA/TPF) in February 2024. Furthermore, liquidity management in the banking system is improving given large banking industry placements in liquid securities and the strategy to invest in pro-market monetary instruments, which includes trading SRBI in the secondary market, thereby providing the banks flexibility in terms of liquidity management. In terms of capital, the Capital Adequacy Ratio (CAR) in the banking industry is still high at 27.52%, recorded in January 2024, supported by low credit risk, as indicated by NPL ratios of 2.35% (gross) and 0.79% (nett). Overall, solid banking industry resilience is supported by sound corporate and household repayment capacity, as demonstrated by improving corporate performance and improving expectations of household income. The results of BI stress tests further confirmed solid banking industry resilience in the face of various uncertainty risks moving forward. Bank Indonesia will continue strengthening synergy with the KSSK to mitigate various domestic and global economic risks that could potentially disrupt financial system stability.
Payment system transactions continue to perform solidly. In February 2024, BI-RTGS transactions increased 8.96% (yoy) to reach Rp12,916.42 trillion, while BI-FAST transactions increased 36.45% (yoy) to reach Rp478.42 trillion. The value of digital banking transactions grew 19.72% (yoy) to Rp5,103.03 trillion and the value of electronic money transactions grew 44.24% (yoy) to Rp80.03 trillion. The value of QRIS transactions enjoyed impressive 161.51% (yoy) growth, with QRIS users and merchants totalling 46.98 million and 31.27 million respectively. On the other hand, the value of card-based payments using ATM, debit and credit cards totalled Rp566.65 trillion in the reporting period, retreating 8.81% (yoy). In terms of Rupiah currency management, total currency in circulation in February 2024 grew 11.89% (yoy) to Rp1,013.05 trillion. In close synergy with the Government and payments industry, Bank Indonesia will continue expanding acceptance of payment system digitalisation and strengthening various aspects of consumer protection in terms of product innovation through digital literacy campaigns, including QRIS Jelajah Indonesia, and expanding cross-border QRIS payment linkages.
Infrastructure stability and the structure of the payments industry remain solid. In terms of infrastructure, Bank Indonesia maintains a secure 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. SNAP-based payment transactions that facilitate interconnection between industry players in the payment system are increasing in response to greater cooperation between existing and new users. Moving forward, Bank Indonesia will continue ensuring the availability, reliability and security of the BI and industry payment systems, which includes monitoring the reliability of participants' systems to provide payment transactions during the Ramadan and Eid-ul-Fitr 1445 H festive period. Furthermore, Bank Indonesia will also ensure the availability of Rupiah currency fit for circulation in suitable denominations throughout all regions of the Republic of Indonesia, particularly ahead of Ramadan and Eid-ul-Fitr 1445 H, through the SERAMBI 2024 program.
