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​Communication Department
5/28/2020 10:00 AM
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Latest Economic Developments and BI Measures against COVID-19 (28th May 2020)

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Monitoring the latest economic conditions in Indonesia, especially in terms of the COVID-19 impact, Bank Indonesia Governor, Perry Warjiyo, announced two recent developments on Thursday (28/5) concerning the latest economic indicators and policy measures instituted by Bank Indonesia as follows:

A.     Latest Economic Indicators
1.      Inflation remains low and under control within the 3.0%±1% target corridor
Based on the latest Price Monitoring Survey released in the fourth week of May 2020, inflation in May is estimated at 0.09% (mtm) or 2.21% (yoy), lower than the rate recorded in the same period last year.  Furthermore, very mild inflationary pressures were experienced during the holy fasting month of Ramadan and Eid-ul-Fitr festive period, contained by:
a.      compressed public demand due to the COVID-19 pandemic, including private income.
b.      Low international commodity prices (imported inflation).
c.      Maintained exchange rate stability.
d.     Anchored inflation expectations, reflecting close coordination between Bank Indonesia and the central and local governments to control prices as well as safeguard the supply of goods and services.
Therefore, Bank Indonesia remains confident that inflation in 2020 will remain low and under control, within the 3.0%±1% target.
2.   The current account deficit narrowed in the first quarter of 2020, therefore maintaining external resilience.
The current account deficit stood at USD3.9 billion (1.4% of GDP) in the first quarter of 2020, down significantly from USD8.1 billion (2.8% of GDP) in the previous period.  Several factors led to a significantly narrower current account deficit as follows:
a.   A larger goods trade surplus as imports continued to decline on weaker domestic demand, thereby minimising the impact of falling exports due to the global economic contraction.
b.   A smaller services trade deficit in line with a narrower transportation services trade deficit as imports continued to decline, while fewer international travellers to Indonesia eroded the travel services trade surplus.
c.      A decline in the primary income account deficit in line with lower interest and dividend payments induced by capital outflows.
3.      Foreign capital inflows have returned.
Foreign capital recorded a Rp6.15 trillion inflow to tradeable government securities (SBN) in the second week of May 2020, up from Rp2.97 trillion in the previous week.  The recent influx of foreign capital points to less global panic and effective COVID-19 containment measures taken in Indonesia.  On the other hand, however, the stock market recorded another outflow in the second week of May 2020, totalling Rp2.72 trillion, triggered by unconducive global stock market dynamics.
4.      Lower benchmark 10-year SBN yield.
SBN yields traded in the secondary market are decreasing as confidence and inflows increase.  Prior to the COVID-19 pandemic, the benchmark SBN yield stood at 8%, falling to 7.76% on 15th May 2020 and then to 7.22% on 26th May 2020.  A wide yield spread of 6.7% between the benchmark 10-year SBN yield and UST bonds has been particularly attractive to investors.
5.      The rupiah remains stable and continues to strengthen towards the currency's fundamental value.
The exchange rate closed yesterday (27/5) at Rp14,670 per US dollar, regaining another Rp60 of lost value, before trading stable at a level of Rp14,700 today (28/5).  Such developments reinforce confidence that the rupiah continues to strengthen towards its fundamental value in line with:
a.      Low and controlled inflation within the 3.0%±1% target corridor
b.      A narrow current account deficit.
c.      Foreign capital inflows
d.      Attractive yields in line with a high yield spread
The rupiah remains undervalued and is yet to strengthen to the currency's fundamental value due to risk premium factors triggered by global financial market uncertainty.  Prior to the COVID-19 pandemic, credit default swaps (CDS)[1] in Indonesia, as a measure of risk premium, stood at 66, before peaking at 245in the second and third weeks of March 2020.  Nonetheless, CDS in Indonesia has declined to 160 in response to less global financial market panic and COVID-19 containment measures.  Furthermore, the risk premium is expected to continue decreasing moving forward.
6.      Reserve Assets
The position of reserve assets in Indonesia at the end of April 2020 was recorded at USD127.9 billion, up from USD121.0 billion at the end of March 2020.  Furthermore, the position of reserve assets is expected to increase again at the end of May 2020.
B.     Policy Coordination concerning the National Economic Recovery
The COVID-19 containment measures include various essential protocols, including large-scale social restrictions, which have severely curbed economic activity.  The Government, Bank Indonesia, Indonesian Financial Services Authority (OJK), Deposit Insurance Corporation (LPS), banking industry and business community are coordinating to catalyse the national economic recovery.  Under the auspices of the Financial System Stability Committee, coordination is handled in line with the jurisdiction of each respective institution.  Bank Indonesia has five policies to support the national economic recovery, namely maintaining rupiah stability, lowering the BI 7-Day (Reverse) Repo Rate, providing liquidity through SBN repo transactions and lower reserve requirements, maintaining accommodative macroprudential policy and ensuring uninterrupted payment systems, both cash and cashless.

1.    Policy coordination between the Government, Bank Indonesia, OJK and LPS towards economic recovery
Bank Indonesia has injected liquidity into the banking industry totalling around Rp583.5 trillion, consisting of tradeable government securities (SBN) purchased in the secondary market, providing a term-repurchase agreement (repo) mechanism, lowering reserve requirements, FX swaps, and exempting additional reserve requirements for banks failing to meet the Macroprudential Intermediation Ratio (MIR).
The National Economic Recovery requires fiscal stimulus support from the Government.  This is achieved by increasing the state budget deficit to fund social spending, subsidies, business incentives and so on, which demand financing support in relation to the larger state budget deficit.  In accordance with Act No. 2 of 2020 (previously Government Regulation in Lieu of Law No. 1 of 2020), Bank Indonesia can purchase SBN in the primary market to support the additional demand for financing.
Deteriorating business conditions necessitate support from the banking industry to help the National Economic Recovery.  To that end, OJK has regulated loan restructuring by the banking industry to shore up businesses, including micro, small and medium enterprises (MSME). Such measures require adequate liquidity in the banking system.  Bank Indonesia has provided liquidity support through a repo mechanism for SBN, amongst others.  Here, it is important to underscore that economic recovery funds for loan restructuring in the banking industry cannot directly be met through short-term liquidity loan/financing facilities (PLJP/S). Such facilities represent the final phase of four, after all other stages of liquidity provision by Bank Indonesia to the banking industry for loan restructuring have been exhausted.
The mechanism for Bank Indonesia to provide liquidity to support fiscal deficit financing and loan restructuring is regulated as follows:
2.      Financing Mechanism for the National Economic Recovery Program
a.      Mechanism for Bank Indonesia to purchase SBN in the primary market to finance the State Revenue and Expenditure Budget (APBN) – Above the Line.
In accordance with the joint decree issued by the Minister of Finance and Bank Indonesia Governor, SUN/SBSN purchases by Bank Indonesia in the primary market are based on general practices through transparent market mechanisms to maintain good governance.  The mechanism for Bank Indonesia to purchase SUN/SBSN in the primary market is divided into three stages as follows:
(i)            Phase I: As a non-competitive bidder, Bank Indonesia can purchase SUN/SBSN in the primary market based on the following provisions:
·        Yield commensurate with the weighted average yield of the auction on the same day.
·      Maximum SUN bid of up to 25% of the target auction maximum and maximum bid on SBSN > 1 year of up to 30% of the target auction maximum.
(ii)               Phase II: A greenshoe option based on the following provisions:
·        Yield commensurate with the weighted average yield of the auction on the previous day.
·        If the incoming bid is lower than the auction target, the maximum offer is the same as the previous offer.
(iii)              Phase III: Private placements based on the following provisions:
·        Refer to the latest market price published by the Indonesia Bond Pricing Agency (IBPA).
·       Private placements are implemented if the Government seeks additional financing based on the agreed terms and conditions.
Bank Indonesia provide interest remuneration on the government account as a form of burden sharing to reduce the state budget burden.
SBN purchases by Bank Indonesia in the primary market as a follow-up action to Act No. 2 of 2020 currently stand at Rp23.98 trillion, with Rp166.21 trillion purchased in the secondary market for stabilisation purposes.  Consequently, BI holdings of SBN were recorded at Rp443.48 trillion on 26th May 2020.
b.      National Economic Recovery and state budget financing mechanism – Below the Line.
Bank Indonesia is providing liquidity to the banking industry through a repo mechanism for SBN in order to fund loan restructuring as part of the national economic recovery.  If SBN purchases are insufficient, banks can apply to the government for fund placements, funded through SBN purchases by Bank Indonesia (below the line).
In accordance with Government Regulation No. 23 of 2020, government fund placements will only occur at participating banks if SBN available for repo to Bank Indonesia are insufficient, provided the participating bank is healthy based on a soundness assessment conducted by OJK and is holding tradeable government securities (SBN), Bank Indonesia certificates of deposit (CD), Bank Indonesia Certificates (SBI), Bank Indonesia Sukuk (SukBI) and Islamic Bank Indonesia certificates (SBIS) that have not been repo totalling more than 6% of third party funds.
Liquidity from Bank Indonesia to the banking industry for loan restructuring is provided through the following mechanisms:
(i)                Phase I: SBN Repo
Total SBN held by the banking industry as of 14th May 2020 was recorded at Rp886.0 trillion. After meeting the Macroprudential Liquidity Buffer (MPLB) requirements for the banking industry, approximately Rp563.6 trillion must be repo to Bank Indonesia prior to applying for government fund placements.  The current position of repo SBN to Bank Indonesia stands at Rp43.9 trillion.
(ii)              Phase II: Government fund placements in accordance with Government Regulation No. 23 of 2020.
(iii)              Phase III: Repo SBN - Macroprudential Liquidity Buffer (MPLB)
·      Pursuant to Bank Indonesia regulations (Macroprudential Liquidity Buffer - MPLB), banks are required to maintain minimum SBN totalling 6% of deposits (Rp330 trillion) for liquidity management in addition to the 3.5% reserve requirements.
·     All SBN, totalling Rp300 trillion, can be repo through monetary operations in accordance with the Bank Indonesia Act before applying for short-term liquidity loan/financing facilities (PLJP/S).
(iv)            Phase IV: Short-term liquidity loan/financing facilities (PLJP/S)in accordance with Act No. 2 of 2020
Banks can apply for the short-term liquidity loan/financing facilities (PLJP/S)if the SBN already repoed are nearly depleted. Pursuant to Act No. 2 of 2020, short-term liquidity loan/financing facilities (PLJP/S) are only available to solvent and healthy banks based on OJK requirements and assessments, with adequate repayment capacity and guaranteed by current loans registered at Bank Indonesia.
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 support solid and resilient economic growth.
Head of Communication Department
Executive Director
Informasi about Bank Indonesia
Tel: 021-131, Email:

[1] CDS or credit default swaps are used as an indicator of risk in a country.

​Contact Center BICARA : 1500-131 e-mail :
Working hours: Monday to Friday, 08.00-16.00 West Indonesia Time
Halaman ini terakhir diperbarui 9/21/2020 8:58 PM
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