No. 24/41/DKom

The BI Board of Governors Meeting agreed on 9^th 10^th February 2022 to hold the BI 7-Day Reverse Repo Rate at 3.50%, while also maintaining the Deposit Facility (DF) rates at 2.75% and Lending Facility (LF) rates at 4.25%. The decision is consistent with the need to maintain exchange rate stability, control inflation and stimulate economic growth amid a build-up of external pressure. Bank Indonesia has also optimised its policy mix to maintain stability and support economic recovery momentum through the following policy measures:

1. Strengthening exchange rate policy to maintain rupiah stability in line with market mechanisms and economic fundamentals.
2. Normalising liquidity policy, as announced on 20^th January 2022, via the following adjustments to rupiah reserve requirements (Appendix 1):
   1. Incrementally raising the rupiah reserve requirement for conventional commercial banks from the current average requirement of 3.0% and daily requirement of 0.5% as follows:
      1. From 1^st March 2022, Bank Indonesia will raise the reserve requirement by 1.5% to 5.0%, calculated fully as an average. Banks fulfilling RR obligations will receive 1.5% remuneration on the RR based on 4.0% of deposits.
      2. From 1^st June 2022, Bank Indonesia will raise the reserve requirement by 1.0% to 6.0%, calculated fully as an average. Banks fulfilling RR obligations will receive 1.5% remuneration on the RR based on 5.0% of deposits.
      3. From 1^st September 2022, Bank Indonesia will raise the reserve requirement by 0.5% to 6.5%, calculated fully as an average. Banks fulfilling RR obligations will receive 1.5% remuneration on the RR based on 5.5% of deposits.
   2. Incrementally raising the rupiah reserve requirement for sharia banks and business units from the current average requirement of 3.0% and daily requirement of 0.5% as follows:
      1. From 1^st March 2022, Bank Indonesia will raise the reserve requirement by 0.5% to 4.0%, calculated fully as an average. Banks fulfilling RR obligations will receive 1.5% ‘athaya on the RR based on 3.0% of deposits.
      2. From 1^st June 2022, Bank Indonesia will raise the reserve requirement by 0.5% to 4.5%, calculated fully as an average. Banks fulfilling RR obligations will receive 1.5% ‘athaya on the RR based on 3.5% of deposits.
      3. From 1^st September 2022, Bank Indonesia will raise the reserve requirement by 0.5% to 5.0%, calculated fully as an average. Banks fulfilling RR obligations will receive 1.5% ‘athaya on the RR based on 4.0% of deposits.
3. Providing incentives for banks disbursing loans/financing to priority sectors and MSMEs and/or achieving the RPIM target in the form of a 1% reduction in the average rupiah reserve requirement, from 1^st March 2022 (Appendix 2).
4. Strengthening prime lending rate (PLR) transparency in the banking industry with a focus on interest rate spread against neighbouring countries (Appendix 3).
5. Increasing the QRIS transaction limit from Rp5 million to Rp10 million per transaction, from 1^st March 2022, to drive private consumption and accelerate the national economic recovery.
6. Expanding the use of Local Currency Settlement (LCS) as a means to settle bilateral trade and investment transactions with major trading partners, especially in Asia.
7. Strengthening international policy by expanding cooperation with other central banks and international organisations in trading partner countries, promoting trade and investment in conjunction with relevant institutions as well as ensuring the success of six priority agendas in the Finance Track together with the Ministry of Finance during Indonesia's G20 presidency in 2022.

Bank Indonesia will also continue to strengthen policy synergy with the Government and Financial System Stability Committee to accelerate the vaccination rollout and reopen economic sectors, facilitate fiscal and monetary coordination as well as revive lending to the corporate sector and other priority sectors, while maintaining macroeconomic and financial system stability and driving the national economic recovery.

The global economic recovery progressed as expected despite the looming risks of increasing Omicron cases, faster monetary policy normalisation by several central banks and escalating geopolitical tensions. The global economic recovery is predicted to endure thanks to a faster vaccination rollout and the support of expansionary fiscal policy. Actual economic growth recorded in the United States, Europe and China demonstrated gains in 2021, while the economic recoveries in Japan and India are expected to persist on accommodative fiscal and monetary policy. The continuing economic recovery was recently confirmed by several strong indicators released in January 2022, including the Purchasing Managers Index (PMI), consumer confidence and retail sales, despite a surge of Omicron cases. Global economic growth in 2022, therefore, is forecast in line with the previous projection of 4.4%. World trade volume and international commodity prices are increasing, thereby bolstering the export outlook in developing economies. Notwithstanding, the global economy continues to face elevated financial market uncertainty in line with faster policy normalisation planned in several advanced economies, particularly the United States and Europe, in response to a build-up of inflationary pressures caused by supply chain disruptions and solid demand, rapid transmission of the Omicron variant and an escalation of geopolitical tensions. Such conditions could potentially restrain capital flows and intensify currency pressures in developing economies, including Indonesia.

National economic recovery momentum has continued in 2022. In the fourth quarter of 2021, Indonesia's economy expanded 5.02% (yoy), improving from 3.51% (yoy) in the previous period. Broad gains were recorded across most economic sectors and GDP components on the expenditure side in line with the domestic economic recovery from the Delta outbreak in the third quarter of 2021. Overall, the economy grew 3.69% in 2021 to reverse the 2.07% (yoy) contraction experienced in 2020. Spatially, stronger economic growth in 2021 occurred in all regions, led by Sulawesi-Maluku-Papua (Sulampua), followed by Java, Sumatra and Kalimantan. The national economic recovery process is expected to persist in 2022, though the recent spike in Omicron cases demands heightened vigilance. Several economic indicators in February 2022 are still solid, including retail sales, consumer expectations and Manufacturing PMI, though community mobility improvements are fading. The domestic economy, therefore, is expected to accelerate to 4.7-5.5% in 2022, supported by a faster vaccination program, broader reopening of the economy and maintained policy stimuli by Bank Indonesia, the Government and other relevant authorities.

Indonesia’s Balance of Payments (BOP) is projected to remain solid. The BOP in 2021 is expected to amass a larger surplus compared with conditions one year earlier, supported by a current account surplus recorded at 0.3% of GDP, coupled with a growing capital and financial account surplus. The latest developments show that foreign capital inflows to domestic financial markets have been maintained, with portfolio investment recording a net inflow totalling USD1.1 billion as of 8^th February 2022. Furthermore, the position of reserve assets at the end of January 2022 remained high at USD141.3 billion, equivalent to 7.6 months of imports or 7.4 months of imports and servicing government external debt, which is well above the 3-month international adequacy standard. BOP performance in 2022 will be maintained with a low and manageable current account deficit projected in the 1.1-1.9% of GDP range. In addition, the capital and financial account is expected to maintain a surplus, primarily in the form of foreign direct investment (FDI) given the recent improvements to the domestic investment climate.

Rupiah exchange rate movements remain under control despite elevated global financial market uncertainty. As of 9^th February 2022, the rupiah appreciated 0.17% (ptp) yet lost 0.27% in value on average compared with the January 2022 level. Rupiah exchange rate developments are supported by maintained foreign capital inflows and domestic foreign-exchange supply, along with a positive perception concerning the domestic economic outlook and exchange rate stabilisation measures implemented by Bank Indonesia. Consequently, the rupiah (as of 9^th February 2022) has depreciated 0.73% (ytd) since the end of 2021, mirroring the currency depreciation experienced in several other developing economies, including the Philippines (0.71% ytd), India (0.65% ytd) and South Korea (0.62% ytd). Moving forward, rupiah exchange rates will remain under control in line with solid economic fundamentals in Indonesia despite continuing global financial market uncertainty. Furthermore, Bank Indonesia continues to strengthen rupiah exchange rate stabilisation policy in line with market mechanisms and economic fundamentals through measures to enhance the effectiveness of monetary operations and adequate market liquidity.

Inflation is low and contributing to economic stability. In January 2022, the Consumer Price Index (CPI) recorded 0.56% (mtm) or 2.18% (yoy) inflation, up from 1.87% (yoy) one month earlier. Headline inflation has been influenced by low core inflation despite early signs of growing domestic demand, maintained exchange rate stability and policy consistency by Bank Indonesia to anchor inflation expectations. Volatile food inflation has increased on restrained supply during the planting season, coupled with higher international CPO prices. On the other hand, higher non-subsidised LPG prices and the knock-on effect of higher tobacco duties intensified inflationary pressures on administered prices (AP). Nevertheless, inflation in 2022 is expected to remain under control within the 3.0%±1% target corridor in line with adequate supply in response to increasing demand, anchored inflation expectations, rupiah exchange rate stability as well as the policy response instituted by Bank Indonesia and the Government. Bank Indonesia remains firmly committed to maintaining price stability and strengthening policy coordination with the central and regional governments through national and regional inflation control teams (TPIP and TPID) to control headline inflation within the target.

Liquidity conditions remain loose given the impact of policy synergy between Bank Indonesia and the Government to support the national economic recovery. Bank Indonesia has injected liquidity through quantitative easing (QE) to the banking industry totalling Rp10.34 trillion in 2022 (as of 8^th February 2022). Bank Indonesia continues to purchase government securities (SBN) in the primary market to fund the 2022 State Revenue and Expenditure Budget (APBN), totalling Rp3.56 trillion as of 8^th February 2022, through primary auction in accordance with the Joint Decree issued by the Minister of Finance and Governor of Bank Indonesia, which is effective until 31^st December 2022. Liquidity in the banking industry remained loose in December 2021, as reflected by a high ratio of liquid assets to deposits at 35.12% and deposit growth of 12.21% (yoy). Liquidity in the economy has also increased, as indicated by narrow (M1) and broad (M2) money supply aggregates, which grew 17.9% (yoy) and 13.9% (yoy) respectively in the reporting period. Based on the affecting factors, fiscal expansion and increasing loans disbursed by the banking industry are driving growth of the money supply.

A consistently low policy rate, loose liquidity conditions and improving risk perception have continued to edge down lending rates in the banking industry. In the markets, the overnight interbank rate and 1-month deposit rate have fallen 25bps and 131bps respectively since December 2020 to 2.79% and 2.96% in December 2021. In the credit market, the banking industry continues to lower lending rates on new loans in line with a lower cost of loanable funds and improving risk perception in the banking industry, coupled with increasing economic activity and public mobility. Bank Indonesia acknowledges an opportunity for the banking industry to increase lending/financing, including through lower lending rates, to hasten the national economic recovery.

Financial system resilience is solid, accompanied by a gradual revival of the bank intermediation function. The Capital Adequacy Ratio (CAR) in the banking industry remained high in December 2021 at 25.67%, with persistently low NPL ratios of 3.00% (gross) and 0.88% (nett). A gradual revival of the bank intermediation function continues, with credit growth reaching 5.24% (yoy) in December 2021. The demand for credit is growing grow in line with increasing corporate and household activity. On the supply side, the banking industry is relaxing lending standards, particularly for investment loans and working capital loans, in line with lower credit risk perception. MSME loans are accelerating on growing demand as business activity recovers, coupled with government program support. Corporate performance is expected to keep recovering, as reflected by stronger sales and capital expenditure. Furthermore, several sectors are prepared to meet increasing demand, particularly Commodities and Manufacturing. Bank Indonesia continues to strengthen policy synergy with the Government and other financial sector authorities to revive credit and financing to the corporate sector, particularly on the demand side in line with increasing economic activity.

Bank Indonesia will continue accelerating payment system digitalisation to expedite the economic recovery and expand an inclusive and efficient economy and finance. Digital economic and financial transactions are developing rapidly given greater public acceptance and growing public preference towards online retail as well as the expansion and convenience of digital payments and digital banking. In January 2022, the value of e-money transactions increased 66.65% (yoy) to Rp34.6 trillion, while digital banking transactions increased 62.82% (yoy) to Rp4,314.3 trillion. The value of payment transactions using ATM cards, debit cards and credit cards grew 14.39% (yoy) in the reporting period to reach Rp711.2 trillion. As public acceptance grows, QRIS transactions are soaring in terms of value and volume by 290% (yoy) and 326% (yoy) respectively. Bank Indonesia continues to nurture payment system innovation, while maintaining a seamless and reliable payment system. Bank Indonesia is encouraging BI-FAST participants to expand BI-FAST services and complete stage 2 of phase 1 BI-FAST development. In addition, Bank Indonesia will continue cross-border QRIS trials with Thailand and Malaysia, while exploring other potential QRIS cooperation in the region. Meanwhile, Bank Indonesia is strengthening synergy and collaboration with government ministries and agencies to accelerate and expand regional digitalisation (P2DD). In terms of cash, currency in circulation in January 2022 grew 10.21% (yoy) to Rp885.2 trillion. Bank Indonesia will proceed with the Sovereign Rupiah Expedition 2022 to ensure adequate availability of rupiah currency fit for circulation throughout the territory of the Republic of Indonesia, while strengthening education about the rupiah.

Jakarta, 10^th February 2022

Head of Communication Department

Erwin Haryono

Executive Director

Information about Bank Indonesia

Tel. 021-131, Email: bicara@bi.go.id