Monitoring the latest economic conditions in Indonesia, the
impact of COVID-19 in particular, Bank Indonesia Governor, Perry Warjiyo,
announced 4 (four) new developments on Thursday (17/4) along with the policy
measures instituted by Bank Indonesia as follows:
1.
Rupiah
exchange rate stable and tend to appreciate
Rupiah today (17/4) is
traded actively in the market, fluctuating around Rp15,480 - Rp15,515. Bank Indonesia considers Rupiah exchange rate is
fundamentally “undervalued”, estimated stable and will appreciate to a level of
Rp15,000 per US dollar by the end of 2020. A stable and appreciating Rupiah
exchange rate indicates improving market confidence. These 4 factors below
support the exchange rate stability:
a. Domestic and foreign market actors have
confidence because Bank Indonesia is always present in the market and
institutes measures required to maintain exchange rate stability.
b. The Market mechanism is working well, thereby
reducing the need for stabilization measures by Bank Indonesia. It affects
increase in reserve assets.
c. For the last one week, especially 14-16 April
2020, foreign capital inflows amounting to Rp0.7 trillion (14/4), Rp0.2
trillion (15/4), Rp2 trillion (16/4), respectively, with the most inflow to
SBN (Government Securities). Historically, from 2011-2019 in Indonesia, outflow
is relatively small within a short period, followed by considerable inflow
within a long period. Data shows the average SBN outflow
is Rp29.2 trillion within 4 (four) months, followed by SBN inflow of Rp229.1
trillion within 21 months. It underlies the
confidence that despite the current outflow attributable to COVID-19 impacts,
Bank Indonesia is confident that after COVID-19 outbreak ends, more substantial
inflow will occur in a longer period.
d. The increasing confidence is supported by
measures taken by different countries in the world, both in COVID-19 mitigation
as well as fiscal and monetary stimulus, including in Indonesia. It is evident
in the Government’s fiscal stimulus (increasing fiscal deficit), quantitative
easing from Bank Indonesia and credit relaxation policy from Indonesian
Financial Services Authority (OJK).
2.
Current
account deficit in Q1 of 2020 lower than 1.5% of GDP. It is supported by 3
factors as follows:
a. Trade balance improves. COVID-19 affects
export drop due to the global demand slowdown, disrupted global supply chain,
and low global commodity prices. However, import drops considerably due to the
declining domestic production activities. Indonesia’s trade balance recorded a
surplus of USD743.4 million in March 2020. In such development,
trade balance of Indonesia in Q1 of 2020 enjoyed a surplus of USD2.62 billion.
b. Service trade deficit is also estimated lower,
attributable to lower import transportation costs. Around 8% of import value is used for
freight and insurance. The sharp drop of import affects the decreasing need for
freight and insurance.
c. Foreign exchange from tourism is far lower
than the previous estimate, which is made only by calculating foreign exchange
decrease from tourism in terms of incoming foreign tourists. However, in the
development, traveling abroad restrictions, including for umrah, thereby
reducing foreign exchange use from domestic tourists canceling their visits
abroad. Foreign exchange decrease for incoming foreign tourists is around USD2
billion. Meanwhile, travel services payments decrease from domestic tourists
canceling their visits abroad is around USD1.6 billion.
Current trade deficit
in Q2 and Q3 of 2020 is estimated low in line with COVID-19 impacts on economic
activities, and it is estimated that throughout 2020 current trade deficit will
turn low.
3.
Easing
Policy Stance of Bank Indonesia.
In the Board of
Governors Meeting in April 2020, Bank Indonesia maintains BI-7DRRR because the
rate has been decreased twice and the priority to maintain exchange rate
stability is sustained. However,
Bank Indonesia perceives adequate space to lower the policy rate due to mild
inflationary pressures and the urgent need to stimulate economic growth. The policies adopted by Bank Indonesia are
quantitative easing, macroprudential policy relaxation, and acceleration of
digital payment system.
O Effective from 1 May
2020, Rupiah reserve requirement ratios (RR) for Conventional Commercial Banks
(CCB) drops by 200 bps or 2%, which will add liquidity by Rp102trillion. In
addition, Bank Indonesia does not apply mandatory additional reserve
requirement to fulfill Macroprudential Intermediation Ratio (MIR) for CCB and Islamic
Banks/Islamic Business Units (IB/IBU) for a period of 1 (one) year, which will
add liquidity by Rp15.8 trillion. In total, quantitative easing by Bank
Indonesia almost reaches Rp420 trillion.
At the same time, Bank
Indonesia strengthens bank liquidity management by increasing mandatory
Macroprudential Liquidity Buffer Ratio (MLB) by 200 bps for CCB through
purchase of Sovereign Debt Securities/Government Islamic securities (SBSN) to
be issued by the Government in the primary market. It will add bank liquidity
and support the need for fiscal financing and in line with quantitative easing
by Bank Indonesia. If a bank needs liquidity, it can sell SBN with
repo to Bank Indonesia.
4. SBN
purchase mechanism in the primary market by BI as the last resort will refer to
the principle where the Government
will first maximize existing fund sources, such as budget surplus, endowment
fund, as well as ADB and World Bank loans. The Government will then issue SBN.
Bank Indonesia will purchase the SBN if it is not absorbed by the market.
Bank Indonesia estimates inflation in April-May 2020 during
Ramadhan and Eid al-Fitr will be lower than the historical pattern. These
4 factors below underlie such estimate:
1. Consumption demand
will be lower in connection with Large-Scale Social Distancing in different
areas. It will reduce social mobility and result in decreasing
physical activities and thereby reducing consumption pattern.
2.
The Government will
ensure basic supplies, including through the role of Inflation Control Team/Regional
Inflation Control Team (TPI/TPID).
3.
Slowing economic
activities, resulting in low expected inflation.
4. Exchange rate is
stable with low commodity prices, making exchange rate pass through and
imported inflation low.
Bank Indonesia will continue to strengthen coordination with the
Government and Indonesian Financial Services Authority (OJK) to carefully
monitor the dynamics of COVID-19 transmission and the economic impact on
Indonesia over time, including the coordinated policy measures required to maintain
macroeconomic and financial system stability, as well as solid and resilient
economic growth.
