The BI Board of
Governors agreed on 16th and 17th May 2018 to raise the BI 7-day Reverse Repo Rate by 25 bps to 4.50%, while also raising the Deposit Facility (DF) and Lending Facility (LF) rates by 25 bps to 3.75% and 5.25% respectively, effective 18th May 2018. The policy is implemented as part of
Bank Indonesia’s policy mix to maintain economic stability amid the escalating
risks in the global financial market and global liquidity downturn. Bank Indonesia also continues to implement rupiah
exchange rate stabilisation measures in line with its economic
fundamentals, while maintaining market mechanisms. The
policy is backed by monetary operations that aims to maintain adequate
liquidity in the foreign exchange and money markets. Furthermore, Bank Indonesia also implements
macroprudential policy, which includes maintaining the Countercyclical Capital
Buffer (CCB) at 0%, to maintain financial system stability and improve
banking intermediation function. Bank
Indonesia will also constantly strengthen policy coordination with the
Government and other relevant authorities to maintain macroeconomic and
financial system stability as well as to strengthen structural reforms. Bank
Indonesia considers the previous policy mix and current policy response as
consistent with efforts to control inflation within the target corridor of 3.5±1%
in 2018 and 2019, while effectively managing external sector resilience. Moving
forward, Bank Indonesia will regularly monitor the latest economic developments
and ready to implement stronger measures to maintain macroeconomic stability.
Global economic growth in 2018 is projected to improve, despite the ongoing global liquidity rebalancing
process. The global economic
growth projection for 2018 has been upgraded from 3.8% to 3.9%, mainly due to
US economic acceleration stemming from
improving investment and consumption, amid the ongoing normalization of US
monetary policy. Economic growth in
Europe is also predicted to accelerate, backed by exports and consumption as
well as accommodative monetary policy. In the developing economies, China is
expected to maintain solid growth as consumption and private investment increases and the economic rebalancing process progresses well. The
promising global economic outlook will stimulate world trade and keep
international commodity prices high, including oil, in 2018. Against a backdrop
of increasing global economic recovery momentum, the US dollar liquidity tend to tighten, resulting in the
rising US treasury security
yields and broad USD appreciation, which prompted
downside pressures on other global currencies. Looking forward, several
external risks will continue to demand vigilance, including hikes in the FFR
and US treasury security yields, the rising oil price, tension in the US-China
trade, and geopolitical issues relating to the cancellation of US-Iran nuclear deal.
Domestic economic growth in Indonesia was solid in the first
quarter of 2018, bolstered by domestic demand. First quarter GDP growth was recorded at 5.06% (yoy), higher than the same period last year, which was recorded
at 5.01%, backed by increasing
investment and resilient private consumption. Investment accelerated from 7.27%
(yoy) to 7.95% (yoy), representing the highest rate recorded in the past five
years, with growth underpinned by improving non-building investment to fuel
increasing production. Strong building investment was maintained in line with
ongoing government infrastructure projects. Furthermore, private consumption
remains solid as campaign spending is ramped up during the approach to the
local elections to be contested this year. Tenacious domestic demand, however,
has induced a surge of imports, primarily of capital goods and raw materials,
while robust export performance has been maintained, albeit moderating from the
previous period. Regionally, economic gains have been reported in Java, Bali
Maluku and Papua. Consequently, Bank Indonesia projects national economic
growth to remain in the 5.1-5.5% range for 2018.
The current account deficit
narrowed in the first quarter of 2018, backed by external sector resilience. The current account recorded a USD5.5 billion deficit
(2.1% of GDP) in the first quarter of 2018 compared with a USD6.0 billion deficit (2.3% of GDP) in the last quarter. The
smaller current account deficit was mainly attributed to a smaller services trade deficit together with a
larger secondary income account surplus. Meanwhile, the capital and financial
account maintained a surplus despite growing global financial market
uncertainty. The capital and financial account surplus stood at USD1.9 billion
in the first quarter of 2018, supported by an influx of direct investment that
reflects the favourable domestic economic outlook perceived by global
investors. In April 2018, the
trade balance recorded a deficit of USD1.63 billion, mainly due to the
increasing non-oil and gas import as economic activity increased. The position of reserve assets in April 2018 was
recorded at USD124.9 billion, equivalent to 7.7 months of imports or 7.4 months
of imports and servicing government external debt, which is well above the
international adequacy standard of three months. Consistent with increasing
domestic economic recovery momentum, Bank Indonesia anticipates a controlled
current account deficit in the 2.0-2.5% of GDP range, which is well below the
3% of GDP threshold.
The rupiah depreciated in the first quarter of 2018, sparked by global USD
appreciation. By point-to point, the rupiah depreciated 1.47% in the first quarter of 2018 and 1.06% in April 2018. The
rupiah exchange rate was controlled on the back of maintained domestic economic
fundamentals and appropriate
stabilisation measures implemented by Bank Indonesia. The rupiah stabilisation measures during the current period of global liquidity
rebalancing was also supported by efforts to optimise monetary operations to
maintain adequate liquidity. Bank Indonesia will continue to monitor the risk
of global financial market uncertainty by
continuing the exchange rate
stabilisation measures in line with the rupiah’s fundamental value, while
maintaining market mechanisms, supported by efforts in developing the financial market.
Inflation in April 2018 was
controlled within the target corridor, underpinned by food price corrections
and anchored expectations. CPI
inflation stood at 0.10% (mtm) in April 2018, down from 0.20% (mtm) the month
earlier. Annually, CPI inflation was recorded at 3.41% (yoy), which is within the
target range in 2018 at 3.5±1%. Inflation was controlled in line with volatile foods
deflation and lower core inflation, contrasting the slight bump in administered
prices. Low and stable core inflation was linked to monetary policy consistency
in terms of containing inflationary pressures. Volatile foods recorded
deflation after a number of food commodities experienced price corrections. In
contrast, the rise in administered prices inflation was down to higher non-subsidised fuel
prices. Bank Indonesia expects inflation to remain within the target corridor
in 2018, namely 3.5±1%. To that end, policy coordination between Bank Indonesia
and the Government will constantly be strengthened, primarily in anticipation
of the seasonal spike in demand for volatile foods during Ramadan and
Eid-ul-Fitr.
The financial system remains stable and the bank
intermediation function is improving. Maintained financial system stability is reflected
in the relatively high Capital Adequacy Ratio (CAR) of the banking
industry, reaching 22.5%, and a sound liquidity ratio of 21.2% in March 2018. In addition, the non-performing loans (NPL) decreased to 2.75% (gross) or 1.25% (nett) in March
2018. The maintained
financial system stability has positively contributed to improving the banking intermediation function. The average deposit and lending rates in rupiah are lowered, though limited, to 5.84% and
11.20%, respectively, in March 2018. The
banking industry reported credit growth at 8.5% (yoy) in March 2018, up from
8.2% (yoy) the month earlier. On the other hand, economic financing through the
capital market remained high in March 2018,
reaching IDR42.9 trillion (gross), mainly from corporate bonds as well as medium-term notes and negotiable
certificates
of deposit. Nonetheless, the banking industry conceded weaker
deposit growth in the reporting period, decreasing from 8.4% (yoy) to 7.7%
(yoy). With the domestic economy gaining momentum and ongoing consolidation in
the corporate and banking sectors, Bank Indonesia projects stronger credit and
deposit growth in 2018 at 10.0-12.0% (yoy) and 9.0-11.0% (yoy) respectively. Bank Indonesia will continue to monitor and mitigate the
impact of exchange rate and interest rate dynamics to financial system
stability, relating to liquidity, capital, and credit risks, to
optimalise healthy banking intermediation.
Jakarta, 17th May 2018
Communication Department
Agusman
Executive Director
