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12/17/2020 9:00 AM
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BI 7-Day Reverse Repo Rate Held at 3.75%: Synergy Building Economic Recovery Optimism

 
Press Releases

No. 22/87/DKom

The BI Board of Governors agreed on 16th and 17th December 2020 to hold the BI 7-Day Reverse Repo Rate at 3.75%, while also maintaining the Deposit Facility (DF) rates at 3.00% and Lending Facility (LF) rates at 4.50%. The decision is consistent with projected low inflation and maintained external stability, coupled with efforts to support the economic recovery.  Bank Indonesia has strengthened policy synergy and supports the various follow-up policies to build national economic recovery optimism through the gradual reopening of productive and safe economic sectors, accelerating fiscal stimuli, increasing bank lending on the demand and supply sides, maintaining monetary and macroprudential stimuli as well as expediting economic and financial digitalisation.  In addition to those policies, Bank Indonesia has also implemented the following measures:

  1. Maintaining rupiah exchange rate stabilisation policy in line with the currency's fundamental value and market mechanisms.
  2. Strengthening the monetary operations strategy to reinforce the accommodative monetary policy stance.
  3. Strengthening accommodative macroprudential policy to stimulate growth of loans/financing allocated to priority sectors towards national economic recovery, while maintaining financial system resilience.
  4. Promoting lower lending rates through close supervision and public communication in coordination with the Indonesian Financial Services Authority (OJK) in terms of interest rate transparency in the banking industry.
  5. Strengthening money market deepening by expanding underlying DNDF to boost liquidity and reinforce JISDOR as a reference for exchange rate setting in the foreign exchange market.
  6. Strengthening integrated bank supervision coordination between Bank Indonesia, the Indonesian Financial Services Authority (OJK) and Deposit Insurance Corporation (LPS) to maintain financial system stability.
  7. Accelerating digital transformation and synergy to strengthen economic recovery momentum through robust payment system policy and faster implementation of the Indonesia Payment System Blueprint 2025.

a.      Extending the 0% Merchant Discount Rate (MDR) on QRIS transactions for micro enterprises until 31st March 2021.

b.      Strengthening and expanding electronification and digitalisation centrally and regionally in synergy with the Central and Regional Governments as well as other relevant authorities by forming a Regional Digitalisation Acceleration and Expansion Team.

c.      Promoting technology innovation and utilisation as well as collaboration between the banking and FinTech industries through faster implementation of Sandbox 2.0, encompassing, among others,  the regulatory sandbox, industrial tests, innovation lab and start-ups

Going forward, Bank Indonesia will continue to direct all policy instruments towards supporting the national economic recovery, while controlling inflation as well as maintaining rupiah exchange rate stability and financial system stability. Furthermore, close policy coordination with the Government and Financial System Stability Committee will constantly be strengthened in order to maintain macroeconomic and financial system stability, as well as expedite the national economic recovery.  The focus of policy coordination is oriented towards overcoming supply and demand-side constraints in terms of bank lending to priority sectors in order to support economic growth and the national economic recovery.

Global economic improvements have endured and are projected to accelerate in 2021.  The global economic gains come amidst increasing mobility and the impact of ongoing policy stimuli in various countries, particularly the United States and China.  Several early indicators in November 2020 pointed to ongoing global economic improvements.  The upward Manufacturing and Services PMI trends have persisted in the United States and China, consumer and business confidence are growing in the United States, China and Europe, and unemployment has fallen in many jurisdictions.  Consequently, the global economy is projected to grow at approximately 5.0% in 2021 after contracting 3.8% in 2020.  Moving forward, the speed of the global economic recovery will be affected by the Covid-19 vaccine rollout, increasing mobility as well as ongoing fiscal and monetary stimuli.  Stronger global economic performance will catalyse world trade volume and raise international commodity prices in line with previous projections.  Meanwhile, global financial market uncertainty is expected to dissipate due to the positive expectations surrounding the global economic outlook in line with the availability of Covid-19 vaccines, abundant global liquidity, low interest rates and a weak US dollar.  Such developments will trigger a surge of capital flows to developing economies, thus strengthening local currencies, including in Indonesia.

At home, domestic economic growth is expected to gradually gain momentum and accelerate in 2021.  This was confirmed by several positive indicators in November 2020, including increasing public mobility in several regions, ongoing improvements in the Manufacturing PMI as well as stronger consumer confidence and expectations concerning incomes, job availability and business activity.  Moving forward, vaccinations and discipline in terms of implementing Covid-19 protocols are prerequisites for the national economic recovery process.  The promising domestic economic outlook is also supported by various policy measures aimed at: (i) reopening productive and safe sectors nationally and in each respective region; (ii) accelerating fiscal stimuli; (iii) stimulating bank lending on the supply and demand sides; (iv) maintaining monetary and macroprudential stimuli; and (v) accelerating economic and financial digitalisation, particularly in terms of SME development.  Under such conditions, Bank Indonesia expects national economic growth to regain positive momentum in the fourth quarter of 2020, and recording -1% to -2% in 2020 before accelerating to 4.8-5.8% in 2021.  Bank Indonesia will continue to strengthen synergy with the Government and other relevant authorities in order to implement the follow-up policy measures necessary to effectively stimulate economic recovery.

Indonesia's Balance of Payments (BOP) remains solid, thus reinforcing external sector resilience.  A narrow current account deficit is predicted on the back of a maintained goods trade surplus.  The trade balance amassed a USD2.61 billion surplus in November 2020 after maintaining a USD3.58 billion surplus the month earlier.  Meanwhile, foreign capital inflows to domestic financial markets continued, with portfolio investment recording a net inflow of USD2.54 billion in the period from October – 15th December 2020.  In addition, the position of reserve assets remained high towards the end of November 2020 at USD133.6 billion, equivalent to 9.9 months of imports or 9.5 months of imports and servicing government external debt, which is well above the international adequacy standard of three months.  Looking ahead, Bank Indonesia projects a low current account deficit in 2020 at below 1.5% of GDP and approximately 1.0-2.0% of GDP in 2021, thereby supporting external sector resilience in Indonesia.

Supported by Bank Indonesia’s stabilisation measures and maintained foreign capital inflows to domestic financial markets, rupiah exchange rates have been maintained.  As of 16th December 2020, the rupiah strengthened by 0.63% on average despite depreciating by 0.04% (ptp) on the November 2020 level.  A surge of foreign capital inflows to domestic financial markets in line with lower global financial market uncertainty and the positive perception of investors towards the promising domestic economic outlook have fed through to a stronger rupiah.  Therefore, the rupiah recorded 1.72% (ytd) depreciation as of 16th December 2020 compared with the level at the end of 2019.  Looking ahead, Bank Indonesia still expects the rupiah to regain lost value as the currency is fundamentally undervalued, supported by a narrow current account deficit, low and stable inflation, attractive domestic financial assets for investment, a lower risk premium in Indonesia as well as abundant global liquidity.  Bank Indonesia will continue to hone rupiah exchange rate stabilisation policy in line with the currency's fundamental value and market mechanisms through effective monetary operations and by providing market liquidity.

Inflation remains low on weak domestic demand and adequate supply.  In November 2020, the Consumer Price Index (CPI) stood at 0.28% (mtm) or 1.59% (yoy) annually.  Core inflation remains low on compressed domestic demand, policy consistency by Bank Indonesia to anchor inflation expectations to the target corridor as well as maintained exchange rate stability.  Meanwhile, volatile food inflation has increased on seasonal factors due to rising horticultural prices after the end of the harvesting season as well as rising international commodity prices.  Inflationary pressures on administered prices also began to accumulate in line with higher airfares despite deflationary pressures on electricity rates in line with the Government’s tariff adjustments.  Bank Indonesia projects inflation in 2020 below the lower bound of the target corridor before returning to the target range of 3.0%±1% in 2021.  Bank Indonesia consistently maintains price stability and strengthens policy coordination with the central and local government through inflation controlling team (TPI and TPID) to control inflation within the predetermined target.

In line with Bank Indonesia's accommodative monetary and macroprudential policy stance, liquidity conditions remain loose, prompting lower interest rates and stimulating economic financing.  As of 15th December 2020, Bank Indonesia has injected around Rp694.87 trillion of additional liquidity through quantitative easing into the banking system, primarily in the form of lower reserve requirements totalling Rp155 trillion and monetary expansion totalling Rp524.07 trillion.  Loose liquidity conditions maintained a high ratio of liquid assets to deposits in November 2020 at 31.52%, coupled with a low overnight interbank rate of 3.20% in the reporting period. Loose liquidity and BI 7-Day (Reverse) Repo Rate reductions have contributed to lower deposit and lending rates from 4.93% and 9.38% in October 2020 to 4.74% and 9.32% respectively in November 2020.  Lower lending rates are expected to persist due to loose liquidity conditions and the low policy rate maintained by Bank Indonesia. Furthermore, the benchmark 10-year SBN yield decreased from 6.16% at the end of November 2020 to 6.07% as of 16th December 2020. In terms of monetary aggregates, M1 and M2 growth remained high in November 2020 at 15.8% (yoy) and 12.2% (yoy) respectively. Moving forward, monetary expansion by Bank Indonesia together with faster budget realisation and bank loan restructuring are expected to stimulate lending for the national economic recovery.

Bank Indonesia will strengthen monetary expansion synergy with fiscal stimuli by the Government in order to build national economic recovery momentum. Bank Indonesia continues its commitment to funding the 2020 state budget through SBN purchases in the primary market in accordance with Act No. 2 of 2020, through market mechanisms and private placement, as part of the efforts to accelerate the national economic recovery program, while maintaining macroeconomic stability. As of 15th December 2020, Bank Indonesia had purchased Rp75.86 trillion worth of SBN in the primary market through market mechanisms pursuant to the Joint Decree of the Minister of Finance and Governor of Bank Indonesia issued on 16th April 2020, including auction schemes, greenshoe options (GSO) and private placement. Meanwhile, funding realisation and burden sharing to fund public goods in the 2020 state budget by Bank Indonesia through private placement in accordance with the Joint Decree of the Minister of Finance and Governor of Bank Indonesia issued on 7th July 2020 currently stand at Rp397.56 trillion.  Overall, therefore, Bank Indonesia has purchased SBN for funding and burden sharing in the 2020 state budget for the national economic recovery program totalling Rp473.42 trillion. In addition, Bank Indonesia has also realised burden sharing with the Government to fund non-public goods-SME totalling Rp114.81 trillion and non-public goods-corporate totalling Rp62.22 trillion pursuant to the Joint Decree of the Minister of Finance and Governor of Bank Indonesia issued on 7th July 2020. Through such synergy, the Government can focus on accelerating state budget realisation in order to drive national economic recovery momentum.

Financial system stability remains solid, although the risks associated with Covid-19 transmission on financial system stability continue to demand vigilance.  The Capital Adequacy Ratio (CAR) remained high in October 2020 at 23.70%, accompanied by persistently low NPL ratios of 3.15% (gross) and 1.03% (nett). Notwithstanding, the intermediation function of the financial sector remains weak, as reflected by a 1.39% (yoy) credit contraction in the reporting period, coupled with 11.55% (yoy) deposit growth. Bank Indonesia is confident that low credit growth stems from weak corporate demand on the demand side and high risk perception in the banking industry on the supply side. New loan growth could potentially accelerate in a number of sectors, including the food and beverages industry, base metals industry as well as leather and footwear industry, in addition to several priority sectors that support economic and export growth.  Corporate and SME performance have improved in those sectors, as reflected by higher sales and repayment capacity. Bank Indonesia will maintain an accommodative macroprudential policy stance, while continuously strengthening policy synergy and coordination with the Government, Financial System Stability Committee, banking industry and business community to overcome the supply and demand-side constraints in terms of bank lending to priority sectors.

Cash and non-cash payment system transactions are increasing in line with the economic recovery, accompanied by rapid economic and financial digitalisation.   In November 2020, currency in circulation grew 12.3% (yoy) to reach Rp804.9 trillion in line with increasing economic activity. Transaction value using ATM, debit cards and credit cards recorded a shallower 1.93% (yoy) contraction in November 2020 compared with a 3.97% (yoy) contraction in October 2020. On the other hand, digital economy and finance transactions maintained positive growth in line with greater use of digital platforms and instruments during the pandemic, together with a shift in public preference and greater public acceptance of digital transactions. Growth of transaction value using electronic money remained positive in November 2020 at 20.27% (yoy).  Similarly, in terms of digital banking, transaction volume and value growth also remained positive at 29.98% (yoy) and 2.11% (yoy) respectively in October 2020.  Bank Indonesia expects the current payment digitalisation trend to persist, supported by FinTech ecosystem integration.  Furthermore, Bank Indonesia will orient payment system policy towards strengthening economic recovery momentum, creating synergy with the Government and other relevant authorities and expanding digital acceptance in all regions of the Indonesian archipelago.

 

Jakarta, December 17th 2020
Head of Communication Department
Erwin Haryono
Executive Director
Information on Bank Indonesia
Tel. 021-131, email: bicara@bi.go.id

 

 

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Contact Center BICARA : (62 21) 131 e-mail : bicara@bi.go.id
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Halaman ini terakhir diperbarui 12/19/2020 8:40 PM
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