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The BI Board of Governors agreed on 20th and 21st January 2021 to hold the BI 7-Day Reverse Repo Rate at 3.75%, while also maintaining the Deposit Facility (DF) rates at 3.00% and Lending Facility (LF) rates at 4.50%.The decision is consistent with projected low inflation and maintained external stability as well as efforts to support the economic recovery.  Bank Indonesia has strengthened policy synergy with the Government and other relevant authorities and supports the various follow-up policies to build national economic recovery optimism through the gradual reopening of productive and safe economic sectors, while accelerating fiscal stimuli, increasing bank lending on the demand and supply sides, maintaining monetary and macroprudential stimuli as well as expediting economic and financial digitalisation.  In addition to those policies, Bank Indonesia has also implemented the following measures:

1. Maintaining rupiah exchange rate stabilisation policy in line with the currency's fundamental value and market mechanisms;
2. Strengthening the monetary operations strategy to reinforce the accommodative monetary policy stance;
3. Accelerating money market deepening by strengthening JISDOR as a rupiah reference rate against the US dollar in order to increase domestic foreign exchange market credibility and support exchange rate stability in Indonesia.  Bank Indonesia has strengthened JISDOR in terms of the methodology, transaction monitoring period and publication schedule as per the attachment;
4. Strengthening accommodative macroprudential policy to stimulate growth of loans/financing allocated to priority sectors towards national economic recovery;
5. Promoting lending rate transparency in the banking industry in order to accelerate monetary and macroprudential policy transmission;
6. Strengthening coordinated and integrated bank supervision between Bank Indonesia, the Indonesian Financial Services Authority (OJK) and Deposit Insurance Corporation (LPS) to maintain financial system stability; and
7. Strengthening payment system policy and rupiah currency management to establish a digital economy and finance ecosystem in order to accelerate the economic recovery by:
1. Applying an integrated and collaborative strategy to expand QRIS acceptance to 12 million merchants, while developing QRIS features, such as transfers, withdrawals and deposits, in order to boost public QRIS acceptance; and
2. Implementing payment system regulatory reforms in accordance with Bank Indonesia Regulation (PBI) No. 22/23/PBI/2020 through industry restructuring, licence reclassification, ownership, technological innovation, including data and information, as well as strengthening supervision, including cyber risk management.
   
   

Moving forward, Bank Indonesia will continue to direct all policy instruments towards supporting the national economic recovery, while controlling inflation and maintaining rupiah exchange rate stability and financial system stability.  Furthermore, close policy coordination with the Government and Financial System Stability Committee will constantly be strengthened in order to maintain macroeconomic and financial system stability, as well as accelerate the national economic recovery.  The focus of policy coordination is oriented towards overcoming supply and demand-site constraints in terms of bank lending to priority sectors in order to support economic growth and the national economic recovery.

The global economic recovery is expected to persist in 2021. Global economic activity will continue to increase as various countries rollout Covid-19 vaccinations, coupled with ongoing fiscal and monetary policy stimuli.  The global economic recovery will primarily be driven by China and the United States, several advanced economies, such as Europe and Japan, as well as developing economies, including India and ASEAN. Several early indicators in December 2020 pointed to ongoing global economic improvements.  The Manufacturing and Services PMI remain in an expansionary phase.  In addition, consumer confidence, particularly in China and Europe, continues to grow along with business confidence in various jurisdictions.  Recent global economic gains have increased world trade volume and international commodity prices.  Meanwhile, global financial market uncertainty is expected to subside in line with expectations of global economic improvements, including the fiscal policy direction pursued by new US Administration, against a backdrop of abundant global liquidity and persistently low interest rates.  In response, an influx of capital has flowed to developing economies, leading to currency appreciation in various countries, including Indonesia.

At home, domestic economic growth, which improved through to the end of 2020, is expected to gradually gain momentum in 2021.  Although lower than previously projected, several indicators in December 2020 revealed ongoing improvements, including export and import activity, the Manufacturing PMI as well as sales and consumer expectations.  The national vaccination program, which began in earnest in January 2021, coupled with discipline in terms of implementing Covid-19 protocols, will accelerate the domestic economic recovery process.  In addition, five policy measures have been designed to support the promising domestic economic outlook as follows: (i) reopening productive and safe sectors nationally and in each respective region; (ii) accelerating fiscal stimuli; (iii) stimulating bank lending on the supply and demand sides; (iv) maintaining monetary and macroprudential stimuli; and (v) accelerating economic and financial digitalisation, particularly in terms of SME development.  Under such conditions, Bank Indonesia is projecting stronger national economic growth in 2021.  Furthermore, Bank Indonesia will continue to strengthen synergy with the Government and other relevant authorities in order to implement the follow-up policy measures necessary to effectively stimulate economic recovery.

Indonesia's Balance of Payments (BOP) remains solid, thereby reinforcing external sector resilience. Positive current account performance persisted in the fourth quarter of 2020, primarily supported by a larger goods trade surplus.  In the fourth quarter of 2020, the trade balance recorded an USD8.3 billion surplus, up from USD8.0 billion in the previous period.  In addition, export activity recorded its largest increment in December 2020 since 2013, reaching USD16.5 billion, or growing 14.6% (yoy), in line with rising commodity prices and increasing demand, primarily in China, US and ASEAN.  For the year, therefore, the current account deficit is projected at approximately 0.5% of GDP in 2020.  Meanwhile, foreign capital inflows to domestic financial markets have been maintained, as reflected by a net inflow of portfolio investment totalling USD2.1 billion in the fourth quarter of 2020, thus reversing the USD1.7 billion net outflow recorded in the previous period.  Entering 2021, foreign capital inflows to domestic financial markets have been maintained, totalling USD5.1 billion on 19^th January 2021, including global bond issuances by the Government.  Consequently, the position of reserve assets remained high towards the end of December 2020 at USD135.9 billion, equivalent to 10.2 months of imports or 9.8 months of imports and servicing government external debt, which is well above the international adequacy standard of three months.  Looking forward, Bank Indonesia projects the current account deficit at 1.0-2.0% of GDP in 2021, thereby supporting external sector resilience in Indonesia.

Supported by Bank Indonesia's stabilisation measures and maintained foreign capital inflows to domestic financial markets, the rupiah is appreciating.  As of 20^th January 2021, the rupiah strengthened 0.77% on average, or by 0.14% (ptp) on the December 2020 level.  A surge of foreign capital inflows to domestic financial markets in line with lower global financial market uncertainty and the positive perception of investors towards the promising domestic economic outlook have fed through to a stronger rupiah. Looking ahead, Bank Indonesia still expects the rupiah to regain lost value as the currency is fundamentally undervalued, supported by a narrow current account deficit, low and stable inflation, attractive domestic financial assets for investment, a lower risk premium in Indonesia as well as abundant global liquidity.  In addition, Bank Indonesia will continue to strengthen rupiah exchange rate stabilisation policy in line with the currency's fundamental value and market mechanisms through effective monetary operations and by providing market liquidity.

Inflation remains low on compressed domestic demand and adequate supply.  In 2020, the Consumer Price Index (CPI) stood at 1.68% (yoy), which is below the 3.0%±1% target corridor.  Low inflation in 2020 was influenced by low core inflation at 1.60% (yoy) in line with weak domestic demand, policy consistency by Bank Indonesia to anchor inflation expectations to the target corridor as well as decreasing exchange rate pass-through.  Inflationary pressures on administered prices were also mild, at just 0.25% (yoy), in line with restricted public mobility and government efforts to reduce energy prices in order to buoy public purchasing power.  Meanwhile, volatile food inflation remained under control at 3.62% (yoy) in 2020, supported by weak demand and adequate supply despite seasonal pressures towards yearend.  Inflation in 2021 is projected to remain under control and within the 3.0%±1% target corridor.  Bank Indonesia remains firmly committed to maintaining price stability and strengthening policy coordination with the Government through national and regional inflation control teams (TPI and TPID) in order to control headline inflation within the predetermined target range.

In line with Bank Indonesia's accommodative monetary and macroprudential policy stance, liquidity conditions remain loose, prompting lower interest rates and stimulating economic financing.  In 2020, Bank Indonesia injected around Rp726.57 trillion of additional liquidity through quantitative easing into the banking system, primarily in the form of lower reserve requirements totalling Rp155 trillion and monetary expansion totalling Rp555.77 trillion.  Bank Indonesia has also injected liquidity in 2021 through monetary expansion totalling approximately Rp7.44 trillion (as of 19^th January 2021). Loose liquidity conditions maintained a high ratio of liquid assets to deposits in December 2020 at 31.67%, coupled with a low overnight interbank rate of 3.04% in the reporting period. Loose liquidity and BI 7-Day (Reverse) Repo Rate reductions have contributed to lower interest rates on term deposits and working capital loans from 4.74% and 9.32% in November 2020 to 4.53% and 9.21% respectively in December 2020.  Lower lending rates are expected to persist due to loose liquidity conditions and the low policy rate held by Bank Indonesia. Meanwhile, the benchmark 10-year SBN yield increased from 5.86% at the end of December 2020 to 6.27% as of 20^th January 2021. In terms of monetary aggregates, M1 and M2 growth remained high in December 2020 at 18.5% (yoy) and 12.4% (yoy) respectively. Moving forward, monetary expansion by Bank Indonesia together with faster budget realisation and bank loan restructuring are expected to stimulate lending for the national economic recovery.

Bank Indonesia is strengthening monetary expansion synergy with fiscal stimuli by the Government in order to build national economic recovery momentum. Through its commitment to the 2020 State Budget, Bank Indonesia in 2020 purchased SBN for funding and burden sharing in the 2020 State Budget and to support the national economic recovery program totalling Rp473.42 trillion, consisting of Rp75.86 trillion and Rp397.56 trillion in accordance with the Joint Decrees of the Minister of Finance and Governor of Bank Indonesia issued on 16^th April and 7^th July 2020 respectively. In addition, Bank Indonesia has also realised burden sharing with the Government to fund non-public goods-SME totalling Rp114.81 trillion and non-public goods-corporate totalling Rp62.22 trillion pursuant to the Joint Decree of the Minister of Finance and Governor of Bank Indonesia issued on 7^th July 2020.  In 2021, Bank Indonesia will continue to purchase SBN in the primary market to fund the 2021 State Budget through mechanisms pursuant to the Joint Decree of the Minister of Finance and Governor of Bank Indonesia issued on 16^th April 2020, which was extended on 11^th December 2020 until 31^st December 2021.  In total, as of 19^th January 2021, Bank Indonesia has purchased SBN in the primary market totalling Rp13.66 trillion, including Rp9.18 trillion through auction schemes and Rp4.48 trillion through greenshoe options (GSO).

Financial system stability remains solid, although the risks associated with Covid-19 transmission on financial system stability continue to demand vigilance.  The Capital Adequacy Ratio (CAR) remained high in November 2020 at 24.13%, accompanied by persistently low NPL ratios of 3.18% (gross) and 0.99% (nett). Notwithstanding, the intermediation function of the financial sector remains weak, as reflected by a deeper 2.41% (yoy) credit contraction in December 2020, despite abundant liquidity in line with solid 11.11% (yoy) deposit growth.  Bank Indonesia is confident that low credit growth stems from weak corporate demand on the demand side and high risk perception in the banking industry on the supply side. Bank Indonesia will maintain an accommodative macroprudential policy stance, while strengthening policy synergy and coordination with the Government, Financial System Stability Committee, banking industry and business community to maintain optimism and overcome the supply and demand-side constraints in terms of bank lending to the corporate sector in order to stimulate national economic recovery momentum.

Cash and non-cash payment system transactions are increasing in line with the economic recovery, accompanied by rapid economic and financial digitalisation.   In December 2020, currency in circulation grew 13.25% (yoy) to reach Rp898.9 trillion in line with increasing economic activity. Transaction value using ATM, debit cards and credit cards stood at Rp695.5 trillion, expanding 1.36% (yoy) in December 2020 after contracting 1.93% (yoy) in November 2020. Digital economy and finance transactions maintained solid growth in line with greater use of e-commerce platforms and digital instruments during the pandemic, together with a strong public preference and greater public acceptance of digital transactions. Therefore, the value of electronic money was recorded at Rp22.1 trillion in December 2020, expanding 3.44% (yoy). Similarly, in terms of digital banking, transaction volume and value growth remained robust at 41.53% (yoy) and 13.91% (yoy) to reach 513.7 million transactions and Rp2,774.5 trillion respectively. Bank Indonesia expects the current payment digitalisation trend to persist with rapidity, supported by expansion of the inclusive digital economy and finance ecosystem.  Furthermore, Bank Indonesia will continue to accelerate payment system digitalisation policy in order to establish an inclusive and efficient digital economy and finance ecosystem, while expediting the national economic recovery by expanding QRIS acceptance to 12 million merchants, expanding QRIS transfer, withdrawal and deposit features, setting the merchant discount rate for chip-based electronic money, effective 1^st March 2021, and implementing the Indonesia Payment System Blueprint 2025.  To strengthen synergy with the Government, other relevant authorities and the industry, Bank Indonesia has organised the Indonesia Digital Economy and Finance Festival, with activities starting in January 2021 and peaking in April 2021.