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Economic and Monetary Policy Department​​​

11/23/2021 10:00 AM
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Monetary Policy Review - November 2021


Monetary-Policy-Review-November-2021.pngThe BI Board of Governors Meeting agreed on 17th and 18th November 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:

  1. Maintaining rupiah exchange rate policy to preserve stability in line with the currency's fundamental value and market mechanisms.
  2. Continuing the strengthening strategy for monetary operations to reinforce the effectiveness of the accommodative monetary policy stance.
  3. Strengthening prime lending rate (SBDK) transparency in the banking industry by deepening the assessment of the largest banks that dominate 70% of the credit market (Appendix).
  4. Extending the 0% QRIS merchant discount rate (MDR) for micro merchants until 30th June 2022 to maintain QRIS acceptance and uptake as well as industry sustainability.
  5. Promoting trade and investment as well as socialising Local Currency Settlement (LCS) in conjunction with other relevant institutions.  In November and December 2021, promotional activities will be organised in Japan, China, United States, United Kingdom, Russia, Brunei 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 as expected despite disruptions in the global supply chain and the ongoing energy shortage.  Economic growth moderated in various countries during the third quarter of 2021, including the United States, China and Japan, as a corollary of the highly contagious Delta variant of coronavirus, supply chain disruptions and the ongoing energy shortage.  On the other hand, solid growth has been maintained in Europe as economies continue to reopen.  Entering the fourth quarter of 2021, the global economic recovery is expected to persist, as confirmed by several early indicators in October 2021, such as the Purchasing Managers Index (PMI), consumer confidence and retail sales, as well as an easing of the energy shortage  in China.  Bank Indonesia, therefore, projects global economic growth in 2021 at 5.7% with similarly solid performance expected in 2022. World trade volume and international commodity prices continue to rise, thereby supporting the export outlook in developing economies.  Global financial market uncertainty remains slightly elevated by concerns of an earlier tightening of global monetary policy in response to persistently higher inflation, which would restrict capital flows and intensify currency pressures in developing countries, including Indonesia.


Incremental domestic economic gains are expected to continue.  The national economy grew 3.51% (yoy) in the third quarter of 2021, decelerating from 7.07% (yoy) in the previous period after the Government reintroduced mobility restrictions to contain the Delta variant surge of coronavirus.  Economic performance in the reporting period was supported by solid exports despite restrained household consumption and investment.  By sector, the key drivers of domestic economic growth are the Manufacturing Industry, Trade as well as Mining,  and spatially supported by economic performance  in the Sulawesi-Maluku-Papua (Sulampua), Kalimantan and Sumatra regions.  Bank Indonesia projects stronger economic growth in the fourth quarter of 2021, underpinned by solid exports, larger fiscal spending as well as increasing consumption and investment activity.  This was confirmed by improving indicators at the beginning of November 2021, including public mobility, retail sales, consumer expectations, manufacturing PMI as well as export and import realisation.  Bank Indonesia expects economic growth to continue accelerating in 2022 on the back of greater mobility afforded by a faster vaccination program rollout, broader reopening of economic sectors and ongoing policy stimuli.


External sector resilience in Indonesia has been maintained in line with a solid Balance of Payments (BOP). The current account is expected to record a positive balance in the third quarter of 2021, supported by strong exports on increasing global demand and international commodity prices.  Foreign capital inflows of direct investment and portfolio investment are predicted to maintain a capital and financial account surplus.  The trade surplus reached USD5.7 billion in October 2021, which is the highest level recorded, bolstered by exports of major commodities, such as coal, crude palm oil (CPO), iron and steel.  Meanwhile, portfolio investment in the fourth quarter of 2021 (as of 16th November 2021) recorded a net inflow totalling USD0.14 billion.  At the end of October 2021, the position of reserve assets stood at USD145.5 billion, equivalent to 8.5 months of imports or 8.3 months of imports and servicing government external debt, which is well above the 3-month international adequacy standard.   Looking ahead, Bank Indonesia projects a low and manageable current account deficit in 2021 and 2022, thus supporting external sector resilience in Indonesia.


In response to Bank Indonesia's stabilisation measures, rupiah exchange rate movements remain under control despite global financial market uncertainty that has not yet fully subsided.  As of 17th November 2021, the rupiah depreciated 0.53% (ptp) and 0.56% on average compared with the October 2021 level.  The weaker rupiah stems from restrained foreign capital inflows despite the promising domestic economic outlook and maintained domestic supply of foreign exchange.  Compared with the level at the end of 2020, therefore, the rupiah has depreciated by 1.35% (ytd), which is relatively lower than the depreciation experienced in several other developing economies, namely 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 October 2021, the Consumer Price Index (CPI) recorded 0.12% (mtm) inflation, bringing headline inflation to 0.93% (ytd) for the year.  Annually, CPI inflation stood at 1.66% (yoy), up from 1.60% (yoy) in September 2021.  Despite early signs of growing domestic demand, core inflation remains low in line with maintained supply, stable exchange rates and anchored inflation expectations.  Lower volatile food inflation was recorded due to adequate supply, while inflationary pressures on administered prices have increased as a result of rising airfares in line with greater mobility and the knock-on effect of higher tobacco excise duty.  Consequently, inflation in 2021 and 2022 is projected within the 3.0%±1% target corridor.  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 control 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 Rp137.24 trillion in 2021 (as of 16th November 2021).  In addition, Bank Indonesia continues to purchase SBN in the primary market to fund the 2021 State Revenue and Expenditure Budget (APBN), totalling Rp143.32 trillion, in accordance with the Joint Decree (KB) issued by the Minister of Finance and Governor of Bank Indonesia on 16th April 2020 and subsequently extended on 11th December 2020 until 31st December 2021. SBN purchases include Rp67.87 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 October 2021 by a high ratio of liquid assets to deposits of 34.05% and deposit growth of 9.44% (yoy).  Liquidity in the economy has also increased, as indicated by narrow (M1) and broad (M2) money supply aggregates, which grew 14.6% (yoy) and 10.4% (yoy) respectively in the reporting period, primarily driven by fiscal expansion and growth of outstanding loans disbursed by the banking industry.


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.  In the markets, the overnight interbank rate and 1-month deposit rate have fallen 52bps and 151bps respectively since October 2020 to 2.80% and 3.17% in October 2021.  In the credit market, the banking industry continues to lower prime lending rates (SBDK), accompanied by low 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 September 2021 at 25.18%, with persistently low NPL ratios of 3.22% (gross) and 1.04% (nett).  Boosted by growing supply and demand, the bank intermediation function expanded 3.24% (yoy) in October 2021.  Demand for loans is increasing in line with business activity and consumption as restrictions on public activity are relaxed.  On the supply side, the banking industry loosened lending standards in line with lower risk perception.  All loan types recorded positive growth, led by consumer loans and working capital loans, while housing loans posted higher growth at 8.87% (yoy).  Meanwhile, growth of MSME loans accelerated to 3.04% (yoy) in the reporting period. Such developments demonstrate ongoing gains in the real and corporate sectors, MSMEs in particular. Bank Indonesia will maintain an accommodative macroprudential policy stance as well as policy synergy with the Government and other financial sector authorities to revive bank lending.


Bank Indonesia continues to accelerate digitalisation programs in accordance with the Indonesia Payment System Blueprint (BSPI) 2025 towards greater integration of the digital economy and finance as well as financial and economic inclusion, while supporting the national economic recovery. 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 55.54% (yoy) to Rp29.23 trillion in October 2021.  Similarly, the value of digital banking transactions increased 63.31% (yoy) to Rp3,910.25 trillion in the same period and the value of payment transactions using ATM cards, debit cards and credit cards grew 6.37% (yoy) to Rp664.26 trillion.  Such achievements were reinforced by expansion of the QRIS ecosystem, with QRIS now accepted by over 12.5 million merchants, thus exceeding the target for 2021. This achievement is the result of collaboration and synergy between the central and regional governments, government ministries and agencies, associations/organisations and the industry as well as all elements of the public. On the cash side, currency in circulation in October 2021 grew 5.9% (yoy) to reach Rp854.3 trillion.  Bank Indonesia continues to ensure cash availability in all regions of Indonesia, while digitalising rupiah currency management and providing educational activities concerning love, pride and understanding the rupiah (Cinta Bangga Paham Rupiah).


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Halaman ini terakhir diperbarui 11/23/2021 2:38 PM
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