No. 22/30/DKom
The BI Board of Governors agreed on 13th and
14th April 2020 to hold the BI 7-Day Reverse Repo Rate at 4.50%, while also
maintaining the Deposit Facility (DF) and Lending Facility (LF) rates at 3.75%
and 5.25%. The
decision considers the need to maintain external stability amidst heightened
global financial market uncertainty, while Bank Indonesia perceives adequate
space to lower the policy rate due to mild inflationary pressures and the
urgent need to stimulate economic growth.
1. To
stabilise and strengthen rupiah exchange rates, Bank Indonesia has strengthened
the intensity of triple intervention policy through the spot and Domestic
Non-Deliverable Forward (DNDF) markets, as well as purchasing SBN in the
secondary market.
2. To
support national economic recovery efforts from the deleterious COVID-19
impact, Bank Indonesia will increase monetary easing through quantitative
easing as follows:
a. Expand
monetary operations by providing banks and the corporates a term-repo mechanism
with SUN/SBSN underlying transactions of tenors up to one year.
b. Lower
the rupiah reserve requirement ratios by 200bps for conventional commercial
banks and by 50bps for Islamic banks/Islamic business units, effective from 1st
May 2020.
c. Relax
the additional demand deposit obligations to meet the Macroprudential
Intermediation Ratio (MIR) for conventional commercial banks as well as Islamic
banks/Islamic business units for a period of one year, effective from 1st
May 2020.
3. To
strengthen liquidity management in the banking industry and in relation to the
lower rupiah requirements, Bank Indonesia has raised the Macroprudential
Liquidity Buffer (MLB) by 200bps for conventional commercial banks and by 50bps
for Islamic banks/Islamic business units, effective from 1st May
2020. The banking industry is required
to meet the additional MLB through purchases of government issued SUN/SBSN in
the primary market.
4. To
increase the uptake of non-cash payment instruments in order to mitigate the COVID-19
impact, Bank Indonesia is increasing various payment system policy instruments
as follows:
a. Supporting
government programs to accelerate non-cash social aid program (bansos)
disbursements to members of the public in conjunction with payment system
service providers by expediting the electronification of relevant social
programs, including the Family Hope Program (PKH), Noncash Food Assistance
Program (BPNT), Pre-Employment Card and Smart Indonesian Card (KIP).
b. Increasing
public socialisation activities in collaboration with payment system service
providers to increase the uptake of non-cash payment instruments through
digital banking, electronic money and broader QRIS acceptance.
c. Relaxing
credit card policy by lowering the upper limit for credit card interest,
minimum payment requirements and the penalties for late payments, while
supporting credit card issuer policy to extend the due date for customers.
Further clarification concerning the lower reserve
requirements, higher MLB ratio and credit card policy is provided in the
attachment to this press release.
Bank Indonesia's policy mix is part of the policy synergy
coordinated closely with the Government as well as through the Financial System
Stability Committee as well as other relevant authorities to maintain
macroeconomic and financial system stability, while striving to recover the
national economy from COVID-19. Bank Indonesia
will continue to monitor economic and global financial market dynamics as well
as the spread of COVID-19 and its economic impact on Indonesia over time, while
implementing the coordinated follow-up policies required with the Government
and Financial System Stability Committee to maintain macroeconomic and
financial system stability, and supporting the national economic recovery.
The COVID-19 pandemic has spread to all corners of the
world and intensified the risk of a global economic recession in 2020, while
its impact on global financial market panic is gradually subsiding. The risk of a global economic recession in
2020 has increased due to compressed demand and production disruptions caused,
amongst others, by limited individual mobility and other restrictions to reduce
COVID-19 transmission. Congruently, economic contraction is predicted in
advanced economies for 2020, including the United States and various countries
in Europe, despite ultra-accommodative fiscal and monetary policies. In addition, the economic growth outlook for
developing economies has also been downgraded.
The risk of global economic recession will peak in the second and third
quarters of 2020, mirroring the COVID-19 pandemic, with a recovery expected to
begin in the fourth quarter of 2020. In
2021, world economic growth is expected to rebound strongly due to the various
policies implemented worldwide in addition to the base effect. Meanwhile, global financial market panic,
which peaked in March 2020, has begun to subside in line with positive
sentiment concerning the global policy response. Global financial market risk has faded, as
confirmed by a decline in the VIX volatility index from a level of 85.4 on 18th
March 2020 to 41.2 on 14th April 2020.
Global economic decline and the spread of COVID-19 in
Indonesia are expected to hamper domestic economic growth momentum. Exports in 2020 are predicted to decline on
compressed global demand, global supply chain disruptions and low international
commodity prices. Meanwhile, social
restrictions to contain COVID-19 have eroded private incomes and reduced
production, thus lowering domestic demand in the form of household consumption
and investment. Domestic economic
moderation in Indonesia is projected to peak in the second and third quarters
of 2020, mirroring the anticipated global economic contraction and economic
impact of COVID-19 containment measures.
Notwithstanding, the national economy is expected to regain upward
momentum in the fourth quarter of 2020, with overall growth for the year projected
around 2.3% before increasing significantly in 2021. In addition to the expected global economic
improvements, the national economic recovery will also be driven by various
policies implemented by the Government, Bank Indonesia and other relevant
authorities.
A narrow current account deficit is projected. Despite an export decline on dwindling demand
and lower international commodity prices, the trade balance is expected to
improve due to a deeper import contraction on falling domestic demand as well
as less demand for production inputs for export activities. Furthermore, a narrower services trade
deficit is also expected due to lower import transportation costs and
lower-than-projected tourism receipt.
The primary income account deficit has also reduced in line with
shrinking foreign holdings of domestic financial instruments. Overall, the current account deficit is
projected below 1.5% of GDP in the first quarter of 2020. Meanwhile, foreign capital inflows are
expected to gradually return to Indonesia as global financial market panic
continues to ease and the domestic economy gains momentum. Overall, the solid BOP outlook will reinforce
external sector resilience in Indonesia.
At the end of March 2020, the position of reserve assets stood at
USD121.0 billion, equivalent to 7.2 months of imports or 7.0 months of imports
and servicing government external debt, which is projected to increase at the
end of April 2020. Bank Indonesia is
confident that the current position of international reserves is more than
adequate to meet imports, service government external debt and stabilise rupiah
exchange rates.
The rupiah regained some of its lost value in the second
week of April 2020 as global financial market panic began to subside. On 13th April 2020, the rupiah
appreciated 4.35% (ptp) on the level recorded at the end of March 2020. Notwithstanding, the rupiah has still
depreciated by around 11.18% on the level recorded at the end of 2019. The rupiah appreciated in April 2020 in
response to an influx of foreign capital flows to domestic financial markets after
various policies were implemented around the world to mitigate the economic
impact of COVID-19, including in Indonesia.
The stronger rupiah was also supported by the maintained supply of
foreign exchange from domestic players, which underpinned rupiah exchange rate
stability. Bank Indonesia is confident
that the current value of the rupiah is adequate to support economic
rebalancing, as the currency is fundamentally undervalued. Furthermore, rupiah stability is expected as
the currency strengthens towards Rp15,000 per US dollar at the end of 2020. Moving forward, Bank Indonesia will continue
to bolster rupiah stabilisation policy in line with the currency's fundamental
value and market mechanisms. To that
end, Bank Indonesia will increase the intensity of triple intervention policy
through the spot and Domestic Non-Deliverable Forward (DNDF) markets, as well
as purchasing SBN in the secondary market.
To boost the effectiveness of exchange-rate policy, therefore, Bank
Indonesia will continue to optimise monetary operations in order to ensure
sound market mechanisms and adequate liquidity in the money and foreign
exchange markets.
Inflation remains low, thus supporting economic stability. CPI inflation in March 2020 was recorded at
0.10% (mtm), down from 0.28% (mtm) the month earlier, influenced by weak demand
and adequate goods supply, including food, as well as a smooth distribution
chain. By component, low headline
inflation stemmed from controlled core inflation as well as deflation of
volatile foods and administered prices.
Core inflation, excluding gold, remains under control due to policy
consistency by Bank Indonesia to anchor rational inflation expectations to the
target corridor, together with low exchange-rate pass-through. Gold prices were edged up by international
gold prices in line with higher demand as a safe haven asset during this period
of heightened global financial market uncertainty. Meanwhile, volatile food deflation was
accounted for by price corrections affecting several commodities, such as
various chili varieties, fresh fish, garlic and cooking oil. In addition, further corrections to airfares contributed
to the deflationary pressures on administered prices. Consequently, annual CPI inflation in March
2020 remained under control at 2.96% (yoy), down marginally from 2.98% (yoy) in
February 2020. Going forward, Bank
Indonesia will consistently maintain price stability and strengthen policy
coordination with the central and local governments to control low and stable
inflation in the 3.0%±1% range in 2020 and 2021.
Effective transmission
of the accommodative monetary policy stance is supported by adequate liquidity
in the banking industry. Monetary policy transmission through the
interest rate channel to the money market remains effective, as reflected by a further
150bps decline in the overnight interbank rate to 4.34% and a 166bps decrease
in the 1-week Jakarta Interbank Offered Rate (JIBOR) to a level of 4.58% since
the end of June 2019, prior to the policy rate (BI7DRR) reductions initiated in
July 2019. Meanwhile, transmission of
lower interest rates to deposit rates and lending rates in the banking industry
continued in February 2020.
Consequently, the weighted average deposit rate from the end of June
2019 to February 2020 fell 67bps to 6.16%, with the average lending rate on
working capital loans falling 35bps to 10.07%.
Monetary policy transmission through the interest rate channel is
supported by Bank Indonesia's policy response to maintain adequate liquidity in
the banking system. Thus far in 2020,
Bank Indonesia has injected liquidity to the money market and banking industry
totalling nearly Rp300 trillion through various policy measures, including: (i)
purchasing Rp166 trillion of SBN in the secondary market; (ii) injecting
liquidity to the banking industry totalling more than Rp56 trillion through a
term-repo mechanism with underlying SBN transactions held by the banking
industry; (iii) lowering the rupiah reserve requirement by another 50bps,
effective from 1st April 2020, generating Rp22 trillion of additional
liquidity, after lowering the reserve requirements in 2019 and at the beginning
of 2020, which already added around Rp53 trillion of liquidity; and (iv)
lowering the foreign currency reserve requirement by 4% to increase foreign
currency liquidity in the banking industry by around USD3.2 billion. The policy response taken by Bank Indonesia
maintained adequate liquidity in the money market and banking industry, as
reflected by a high average daily transaction value in the interbank money
market in March 2020 at Rp12.8 trillion, together with a high ratio of liquid
assets to deposits of 22.81% in February 2020.
Bank Indonesia will continue to ensure adequate liquidity and enhance
money market efficiency, while strengthening transmission of the accommodative
policy mix. In addition, Bank Indonesia
is also confident that the latest round of fiscal stimuli introduced by the
Government will further strengthen the effective transmission of liquidity
injections by Bank Indonesia to the real sector.
Financial system stability has been maintained, although
the potential risks associated with the COVID-19 impact on macroeconomic and
financial system stability must still be anticipated. Financial system stability was reflected by a
high Capital Adequacy Ratio (CAR) of 22.27% in February 2020, coupled with a
low level of non-performing loans (NPL) at 2.79% (gross) and 1.04% (nett). A softening in the domestic economy and
increasing economic uncertainty due to the COVID-19 pandemic has undermined
demand for new loans and increased cautious and selective bank lending. Bank Indonesia will focus macroprudential
policy measures on efforts to maintain financial system stability and
anticipate potentially higher risks in the financial sector due to
COVID-19. Coordination with financial
authorities and relevant government ministries/agencies will constantly be
improved in terms of formulating an optimal policy mix and to mitigate
escalating risk in the financial system.
Payment system availability, both cash and non-cash,
remains uninterrupted. The position of currency in circulation
accelerated to 7.53% (yoy) in March 2020 in anticipation of growing demand for
cash during the COVID-19 containment period.
Meanwhile, non-cash transactions using ATM/debit cards, credit cards and
electronic money in February 2020 were observed to decrease in line with less
economic activity. Nevertheless,
payments using digital transactions in March 2020 are expected to increase as a
consequence of growing demand for digital financial and economic transactions
during the period of mobility restrictions.
Bank Indonesia appreciates the various efforts of players in the digital
economy and finance to promote the use of non-cash payments, while backing
government programs to disburse social aid program assistance through non-cash
channels. Such efforts have not only
supported day-to-day economic activities yet also increased economic
efficiency. In conjunction with payment
system service providers, Bank Indonesia will strengthen digital transformation
for the Indonesian economy through implementation of the Indonesia Payment
System Blueprint 2025, including broader QRIS acceptance amongst MSME merchants
and traditional markets, education facilities, social institutions and places
of worship.
Jakarta,
14th April 2020
COMMUNICATION
DEPARTMENT
Onny
Widjanarko
Executive
Director
