The BI Board of Governors Meeting agreed on 24th and 25th May 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 monetary policy stance to control core inflation within the 3.0%±1% target this year and return Consumer Price Index (CPI) inflation to the 3.0%±1% target in the third quarter of 2023. The policy focus is oriented towards strengthening rupiah stability to manage imported inflation and mitigate the contagion effect of global financial market uncertainty. Bank Indonesia is maintaining accommodative liquidity and macroprudential policies to revive lending/financing and preserve financial system stability. Furthermore, Bank Indonesia is also accelerating payment system digitalisation to expand the digital economy and finance as well as strengthen the stability of payment services and systems. The Bank Indonesia monetary, macroprudential and payment system policy mix will remain directed towards supporting sustainable economic growth.
Bank Indonesia, therefore, has strengthened its policy mix response to maintain stability and revive growth as follows:
- Strengthening monetary operations to increase the effectiveness of monetary policy transmission.
- 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.
- 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.
- Continuing prime lending rate (PLR) transparency policy with a focus on the response of funding rates in the banking industry to the policy rate (Appendix).
- Continuing to expand QRIS by: (i) increasing the intensity of campaigns with the industry regarding the public benefits of QRIS use, including the merchant discount rate (MDR), QRIS micro enterprises (UMI) and QRIS TUNTAS (cash withdrawals, transfers and deposits), and (ii) developing cross-border QRIS with Singapore, Japan, India and China.
- Expanding acceptance of the new Indonesia Credit Card through a championship program in 2023 for Regional Digitalisation Acceleration and Expansion Teams (TP2DD).
- 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 sector 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.
World economic growth in 2023 is higher than previously projected. Bank Indonesia projects global economic growth in 2023 at 2.7%, underpinned by stronger growth in emerging markets. China's economy is accelerating on the back of post-pandemic economic reopening. The economic outlook for India has also improved due to strong domestic demand. Meanwhile, economic recovery in advanced economies, particularly the United States (US), is restrained given the impact of tight monetary policy and increasing risk to financial system stability. Global inflation continues to fall, primarily due to a faster disinflation process in developing economies, while tight labour markets are slowing the pace of lower inflation in advanced economies. Global financial market uncertainty remains elevated due to the impact of financial system stability risk in advanced economies, coupled with uncertainty concerning the unresolved government debt ceiling issue in the US. Despite the uncertainty blighting global financial markets, foreign capital continues flowing into developing economies in line with improving economic conditions and prospects.
At home, economic growth in Indonesia remains solid. Economic growth in the first quarter of 2023 was recorded at 5.03% (yoy), up slightly from 5.01% (yoy) in the previous period. Robust first-quarter growth was driven by high exports and growing domestic demand in line with increasing household and government consumption and strong non-building investment. Economic growth was also supported by sound performance across all economic sectors, particularly the manufacturing industry, wholesale and retail trade as well as transportation and storage. Spatially, the highest economic growth was recorded in the regions of Kalimantan and Sulawesi-Maluku-Papua (Sulampua). Meanwhile, the latest developments indicate further economic gains in the second quarter of 2023, as reflected by positive retail sales growth, a Manufacturing Purchasing Managers Index (PMI) in expansionary territory and growing consumer confidence. Amid global economic condition, export performance was solid in April 2023. Consequently, national economic growth in 2023 is forecast in the 4.5-5.3% range.
Indonesia's Balance of Payments (BOP) remains sound, thereby supporting external resilience. The BOP surplus increased in the first quarter of 2023, boosted by a maintained current account surplus in line with the positive trade balance and surplus capital and financial account. The latest developments indicate a large trade surplus in April 2023, totalling USD3.9 billion, on strong non-oil and gas exports. Meanwhile, foreign capital inflows to domestic financial markets continue in the second quarter of 2023, as reflected by a net inflow of portfolio investment totalling USD1.0 billion, as of 23rd May 2023. At the end of April 2023, the position of reserve assets stood at USD144.2 billion, equivalent to 6.4 months of imports or 6.3 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 surplus, supported by foreign capital inflows in the form of FDI and portfolio investment.
The rupiah continues to regain lost value in line with the stabilisation measures implemented by Bank Indonesia. The rupiah is tracking an appreciatory trend in the second quarter of 2023, gaining 0.63% (ptp) as of 24th May 2023 compared with the level recorded at the end of the first quarter of 2023, driven by an influx of foreign capital inflows in the form of portfolio investment. Year-to-date, the rupiah gained 4.48% on the level recorded at the end of December 2022, thus exceeding baht (0.20%) and rupee (0.08%) appreciation, with the peso depreciating 0.10%. Bank Indonesia continues strengthening rupiah stabilisation policy through triple intervention and the twist operation to control imported inflation and mitigate the contagion risk of global financial market uncertainty. Moving forward, Bank Indonesia expects the rupiah to continue appreciating, supported by a positive current account and foreign capital inflows in line with the promising economic growth outlook, low inflation and attractive yields on domestic financial assets for investment.
Lower-than-projected inflation continues to fall. Monthly Consumer Price Index (CPI) inflation stood at 0.33% (mtm) in the reporting period, thereby bringing annual inflation down from 4.97% (yoy) in March 2023 to 4.33% (yoy) in April 2023. Broad-based declines were recorded across all components. Core inflation in April 2023 slowed from 2.94% (yoy) to 2.83% (yoy) in line with lower inflation expectations and milder imported inflation pressures as well as adequate supply in response to growing demand for goods and services. Meanwhile, volatile food (VF) inflation retreated from 5.83% (yoy) in March 2023 to 3.74% (yoy) in the reporting period, supported by maintained food supply despite a seasonal spike in demand during the national religious holidays (HBKN). Persistently lower inflation is a 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) 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 in the third quarter of 2023.
Liquidity conditions in the banking industry and economy remain ample to revive lending/financing and preserve the stability of the financial system. In line with the accommodative liquidity policy stance of Bank Indonesia, the ratio of liquid assets to third-party funds was still high in April 2023 at 26.58%. Liquidity in the economy also remains ample, as reflected by growth of the narrow money (M1) and broad money (M2) monetary aggregates at 3.4% (yoy) and 5.5% (yoy) respectively. In turn, loose liquidity conditions support conducive interest rates to support demand for loans/financing. In the money market, the IndONIA rate as of 24th May 2023 remained low at 5.46%. The yield of short-term SBN decreased 34bps on the level in April 2023 to 5.80%, while long-term yields were more stable. The 1-month term deposit rate in April 2023 was also recorded low at 4.09%. Meanwhile, the average lending rate in March 2023 was still conducive to support demand, namely at 9.37%. 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 grow in line with economic recovery momentum. Growth of loans disbursed by the banking industry in April 2023 stood at 8.08% (yoy), down from 9.93% (yoy). Credit growth was highest for investment loans at 10.12% (yoy), followed by consumer loans at 8.68% (yoy) and working capital loans at 6.55% (yoy). On the demand side, strong credit growth was primarily driven by corporations in the mining sector, manufacturing industry and services sector. On the supply side, the banks are optimistic about achieving lending targets in 2023 in line with the ongoing economic recovery, ample liquidity and looser lending standards. Intermediation in the sharia banking industry grew 18.68% (yoy) in April 2023. In the MSME segment, loan growth was recorded at 6.83% (yoy) in April 2023, supported by the realisation of People's Business Loans (KUR) totalling Rp53.93 trillion as of 30th April 2023. Bank Indonesia will continue reviving bank intermediation to maintain economic recovery momentum.
Financial system resilience remains solid, particularly the banking industry. The Capital Adequacy Ratio (CAR) in the banking industry was still high in March 2023 at 24.69%. Credit risk was also mitigated effectively, as reflected by low NPL ratios of 2.49% (gross) and 0.72% (nett) in March 2023. Liquidity in the banking industry in April 2023 was maintained, supported by 6.82% (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.
The performance of digital economic and financial transactions remains solid, underpinned by a secure, uninterrupted and reliable payment system. The value of electronic money transactions in April 2023 grew 9.00% (yoy) to reach Rp37.4 trillion. The value of transactions using ATM cards, debit cards and credit cards reached Rp738.3 trillion and the value of digital banking transactions was recorded at Rp4,265 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 terms of rupiah currency management, total currency in circulation in April 2023 decreased 0.99% (yoy) to Rp1,031 trillion as money flowed back to Bank Indonesia in line with seasonal trends after Eid-ul-Fitr.
