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The BI Board of Governors Meeting agreed on 21st and 22nd June 2023 to hold the BI 7-Day Reverse Repo Rate at 5.75%, while also maintaining the Deposit Facility (DF) rate at 5.00% and Lending Facility (LF) rate at 6.50%. The decision to maintain BI7DRR at 5.75% is consistent with the monetary policy stance to control inflation within the 3.0%±1% target this year. The policy focus is oriented towards strengthening rupiah stability to manage imported inflation and mitigate the contagion effect of global financial market uncertainty. Bank Indonesia is maintaining accommodative liquidity and macroprudential policies to revive lending/financing and preserve financial system stability. Furthermore, Bank Indonesia is also accelerating payment system digitalisation to expand the digital economy and finance as well as strengthen the stability of payment services and systems. The Bank Indonesia monetary, macroprudential and payment system policy mix will remain directed towards supporting sustainable economic growth.
Bank Indonesia, therefore, has strengthened its policy mix response to maintain stability and revive growth as follows:
Policy coordination with the (central and regional) Government and strategic partners is also strengthened constantly. To that end, coordination within the Central and Regional Inflation Control Teams (TPIP and TPID) is maintained by strengthening the National Movement for Food Inflation Control (GNPIP) in various regions. Furthermore, policy synergy between Bank Indonesia and the Financial System Stability Committee is also strengthened to maintain macroeconomic and financial sector stability, while reviving lending/financing to priority sectors to support economic growth and exports, as well as advancing the green and inclusive economy and finance.
Global economic uncertainty is on the rise again, accompanied by the risk of moderating growth and monetary policy rate hikes in advanced economies. Bank Indonesia projects global economic growth at 2.7% (yoy), with the risk of moderation primarily in the United States (US) and China. In the US, inflationary pressures remain intense, predominantly due to a tight labour market, despite sound economic conditions and milder pressures on financial system stability, leading to further potential Federal Funds Rate (FFR) hikes moving forward. Monetary policy also remains tight in Europe, contrasting looser monetary policy in Japan. Meanwhile, economic growth in China is slower than projected despite low inflation, prompting looser monetary policy. Economic recovery in other developing economies, such as India, remains solid, driven by domestic demand and service exports. Prevailing conditions in advanced economies and emerging markets triggered US dollar depreciation against the currencies of advanced economies and US dollar appreciation against the currencies of emerging markets. This necessitates a strong policy response to mitigate the contagion risk to external resilience in developing economies, including Indonesia.
At home, economic growth in Indonesia remains solid, supported by domestic demand and positive export performance. Household consumption continues to increase on the back of greater mobility, improving income expectations and controlled inflation. Investment is also solid, particularly non-building investment in line with positive export performance and ongoing downstreaming efforts. Tourism sector performance is improving in line with a surge of inbound international travellers. Economic improvements in Indonesia were confirmed by recent Bank Indonesia surveys, indicating growing consumer confidence and positive retail sales, as well as the latest Manufacturing Purchasing Managers Index (PMI) that remained in expansionary territory. Moving forward, economic growth in 2023 is forecast within the BI projection of 4.5-5.3%. Furthermore, Bank Indonesia will continue strengthening synergy between the fiscal stimuli of the Government and macroprudential stimuli of Bank Indonesia to revive economic growth, particularly on the demand side.
Indonesia's Balance of Payments (BOP) continues to support external resilience. Bank Indonesia forecasts a second-quarter current account surplus in 2023, supported by a positive trade balance, amassing a USD4.4 billion trade surplus in May 2023. Meanwhile, foreign capital inflows in the form of portfolio investment in the second quarter of 2023 (as of 20th June 2023) maintained a net inflow totalling USD0.13 billion despite an outflow of USD0.87 billion in June 2023 triggered by elevated global financial market uncertainty. At the end of May 2023, the position of reserve assets remained high at USD139.3 billion, equivalent to 6.1 months of imports or 6.0 months of imports and servicing government external debt, which is well above the international adequacy standard of around 3 months of imports. Positive BOP performance is expected to persist, supported by a manageable current account maintained in the range of a 0.4% surplus to a 0.4% deficit of GDP. In addition, the capital and financial account is predicted to post a surplus on the back of foreign capital inflows in the form of foreign direct investment (FDI) and portfolio investment in line with positive investor perception concerning the national economic outlook.
Rupiah exchange rates remain under control in line with the stabilisation measures implemented by Bank Indonesia.
Global financial market uncertainty induced slight rupiah depreciation in June 2023 (as of 21st June 2023), depreciating by 0.56% compared with the average rate recorded in May 2023. Point-to-point, however, the rupiah regained lost value compared with the levels recorded in May 2023 and at the end of 2022, appreciating by 0.30% and 4.17% respectively. Compared with conditions at the end of 2022, rupiah appreciation exceeded the Indian rupee (0.85%) and Philippine peso (0.15%), with the Thai baht losing 0.70% in value. Moving forward, Bank Indonesia expects the rupiah to continue appreciating, supported by a positive current account and foreign capital inflows in line with the promising economic growth outlook, low inflation and attractive yields on domestic financial assets for investment. Bank Indonesia will continue strengthening rupiah stabilisation policy, in particular through triple intervention policy and the twist operation to manage imported inflation and mitigate the contagion risk of global financial market uncertainty. Furthermore, Bank Indonesia is also strengthening foreign exchange operations by optimising foreign currency term deposits (TD Valas) for foreign exchange proceeds of exports (DHE), as well as increasing the auction frequency and short-term tenors of TD Valas.
Inflation continues retreating towards the 3.0%±1% target quicker than previously projected. Consumer Price Index (CPI) inflation in May 2023 stood at 4.00% (yoy), which is within the 3.0%±1% target corridor. Milder inflationary pressures were observed across all components. Core inflation in May 2023 was recorded at 2.66% (yoy), down from 2.83% (yoy) the month earlier in line with the end of the Eid-ul-Fitr national religious holidays (HBKN), downward international commodity prices and low inflation expectations. Volatile food (VF) inflation decreased to 3.28% (yoy) in the reporting period from 3.74% (yoy) one month earlier, while administered prices (AP) inflation also fell from 10.32% (yoy) to 9.52% (yoy) in the reporting period. Lower headline inflation within the target range is the positive outcome of monetary policy consistency and close synergy to control inflation between Bank Indonesia and the (central and regional) Government through the Central and Regional Inflation Control Teams (TPIP and TPID) as well as the National Movement for Food Inflation Control (GNPIP) in various regions. Bank Indonesia, therefore, is confident that inflation will remain under control in the 3.0%±1% target this year.
Liquidity in the banking industry remains ample to revive lending/financing and preserve the stability of the financial system. In line with the accommodative liquidity policy stance of Bank Indonesia, the ratio of liquid assets to third-party funds was still high in May 2023 at 27.52%. Liquidity in the economy also remains ample, as reflected by growth of the narrow money (M1) and broad money (M2) monetary aggregates at 3.4% (yoy) and 6.1% (yoy) respectively. In turn, loose liquidity conditions facilitate conducive interest rates to support demand for loans/financing. In the money market, the IndONIA rate as of 21st June 2023 remained low at 5.62%. The yield of short-term SBN was recorded at 5.80%, while long-term yields stood at 6.29%. The 1-month term deposit rate and average lending rate in May 2023 were also recorded low at 4.13% and 9.37% respectively. Bank Indonesia will continue ensuring adequate liquidity to revive lending/financing for a faster national economic recovery.
The bank intermediation function continues to grow in line with efforts to strengthen economic growth. Growth of loans disbursed by the banking industry in May 2023 accelerated to 9.39% (yoy) from 8.08% (yoy). Broad-based credit growth was recorded across all loan types and most economic sectors, particularly corporate services, mining, manufacturing and social services. Credit growth was primarily driven by increasing demand in line with strong corporate performance as well as ample liquidity and looser lending standards in the banking industry. Intermediation in the sharia banking industry accelerated to 19.45% (yoy) in May 2023. In the MSME segment, loan growth increased to 7.61% (yoy) in May 2023, supported by the realisation of People's Business Loans (KUR) totalling Rp80.25 trillion as of 31st May 2023. Seeking to accelerate lending/financing growth further, Bank Indonesia will increase macroprudential policy stimuli by raising and honing liquidity incentives for banks disbursing loans/financing to downstream sectors (mining, agriculture, plantations and fishing), housing and tourism, and increasing financial inclusion (MSMEs and KUR) as well as the green economy-finance.
Financial system resilience remains solid, particularly the banking industry. The Capital Adequacy Ratio (CAR) in the banking industry was still high in April 2023 at 25.54%. Credit risk was also mitigated effectively, as reflected by low NPL ratios of 2.53% (gross) and 0.78% (nett) in April 2023. Liquidity in the banking industry in May 2023 was maintained, supported by 6.55% (yoy) growth of third-party funds. BI stress tests further confirmed solid bank resilience in Indonesia. Meanwhile, Bank Indonesia will continue strengthening synergy with the Financial System Stability Committee to mitigate various domestic and global macroeconomic risks that could undermine financial system resilience.
Payment system transactions continue tracking an upward trend, accompanied by
system stability and increasing payment services. The value of digital banking and electronic money transactions increased rapidly by 31.83% (yoy) and 17.90% (yoy) respectively in May 2023, while the value of transactions using ATM cards, debit cards and credit cards grew 8.31% (yoy). QRIS adoption is expanding, as reflected by the growing number of QRIS users and merchants, reaching 35.80 million and 26.1 million respectively, with transaction volume totalling 744 million in response to with the development of domestic and cross-border features. BI-FAST acceptance it is also expanding, with transaction value in May 2023 reaching Rp462 trillion and transaction volume reaching 161.2 million. In terms of rupiah currency management, total currency in circulation in May 2023 grew 4.5% (yoy) to Rp972 trillion in line with economic activity. Bank Indonesia continues ensuring the availability of rupiah currency fit for circulation in all regions of the Republic of Indonesia, which includes maintaining institutional cooperation to circulate the rupiah in 3T (outermost, frontier, remote) regions.
Jakarta, 22nd June 2023
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