Latest Economic Developments and BI Measures against COVID-19 (6 May 2020) - Bank Sentral Republik Indonesia
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June 01, 2020
Monitoring the latest economic conditions in Indonesia, the impact of COVID-19 in particular, Bank Indonesia Governor, Perry Warjiyo, announced 5 (five) latest developments on Wednesday (6/5) along with the policy measures instituted by Bank Indonesia as follows:
1.  Rupiah exchange rate stable and will appreciate to a level of Rp15,000 at the end of the year.
·      Fundamental factors that will drive Rupiah exchange rate trends: 1) Low and controlled inflation within the range of 3±1%; 2) current account deficit in the first quarter which will be lower than 1.5% of GDP, and overall, in 2020 it will be lower than 2% of GDP ; and 3) High yield differential, around 7.5%. 10-years Indonesian Government’s bonds yield is 8.02%, while 10-year US treasury yield is around 0.3% to 0.4%.  Based on those factors, the exchange rate is undervalued and expected to move stable and tend to strengthen.
·      On Monday (4/5), rupiah was closed at level at a level of Rp15,050, and on Tuesday (5/5) appreciated to Rp15,010. Exchange rate movement is affected by positive technical (sentiments) factors, such as some areas in the US and Europe will reopen their economic activities and the Fed’s board members stated that the US economy will improve in semester II of 2020, despite the economic recession in semester I of 2020, and increasing of oil price. 
·      Meanwhile, several negative factor influence exchange rate movement, namely tense relationship between the US and China, tense relationship between North Korea and South Korea, and the German’s Constitutional Court decision that Quantitative Easing (QE) by the European Central Bank (ECB) is unconstitutional because it is not supported by any European Union agreement, unless the ECB can justify and explain it within 3 months.
2.   Foreign capital inflow to Government Securities (SBN) was recorded at Rp1.17 trillion on the First week of May 2020.
·      Movement of foreign capital inflow to SBN in the primary and secondary markets was recorded at Rp1.17 trillion on the first week of May 2020.
·      In April, overall outflow of foreign capital recorded at Rp2.14 trillion, with details as follows, on the first week of April 2020 recorded an inflow of Rp5.73 trillion, on the second  week of April 2020 recorded an outflow of Rp7.98 trillion, on the third week of April 2020 recorded an outflow of Rp2.41 trillion, on the fourth week of April 2020 recorded an inflow of 0.1 trillion, and on the fifth week of April 2020 recorded an inflow of Rp2.42 trillion.
·      Historically, from 2011-2019 in Indonesia, outflow is relatively small within a short period, followed by considerable inflow within a long period. Data shows average outflow is Rp29.2 trillion within a duration of 3-4 months, followed by inflow of Rp229.1 trillion within a duration of 21 months.
3.   Inflation in 2020 controlled and low within the range of 3±1%.
Based on the release of Statistics Indonesia (BPS), Consumer Price Index (CPI) index in April 2020 stood at 0.08% (mtm) or 2.67% (yoy), lower than Bank Indonesia’s prediction. It shows that low demands start to reduce the pressure on inflation due to COVID-19 pandemic mitigation measures, which results in limited human activities due to mobility restrictions, large-scale social distancing (PSBB), etc. This in line with the projection of inflation during Ramadan and Eid al-Fitr which will be lower than the historical data. Bank Indonesia is confident that by the end of 2020, inflation will remain controlled within the range of 3±1%.
4.  Indonesia’s economic growth in the First Quarter of 2020 stood at 2.97% (yoy).
·      Indonesia’s economic growth in the first quarter of 2020 stood at 2.97% (yoy), lower than Bank Indonesia’s projection of 4.4% (yoy). It is affected by the impacts of COVID-19 pandemic mitigation which has started to affect economic activities as reflected in income, consumption, production, investment, export, and import sides. Initially, Bank Indonesia predicted the effect of COVID-19 pandemic mitigation would start to show in April until the mid of June 2020, but it turned out to happen sooner in March 2020.
·      On the expenditure side, the deceleration of economic growth in the first quarter of 2020 is primarily affected by the declining domestic demand. Household consumption stood at 2.84% (yoy), far lower than 4.97% (yoy) in the fourth quarter of 2019. Investment growth also declined by 1.7% (yoy). The Government’s stimulus response through the Government’s consumption, which grew at 3.74% (yoy), curb deeper domestic demand slowdown. In addition, net export has positively contributed, as supported by export growth of 0.24% (yoy) and import contraction of 2.19% (yoy).
·      Indonesia’s economic growth in the first  quarter is one of the highest, as it is better than most of other countries. China’s economic growth in the first quarter of 2020 stood at -6.8% (yoy), far lower than the achievement in fourth quarter of 2019 of 6.0%. The US economic growth in the first quarter of 2020 stood at 0.3% (yoy). Although it remains positive, it is lower than 2.3% (yoy) in the fourth  quarter of 2019. Meanwhile, the economic growth of Europe, Singapore, and South Korea in the first quarter of 2020 is respectively recorded -3.3% (yoy), -2.2% (yoy), and 1.3% (yoy).
5.  Monetary Policy and Operation of Bank Indonesia.
BI is committed to implement prudent monetary policies with good governance.
a.    Mechanism of currency circulation
Under the Law on Currency (Law No. 7 of 2011), the planning, printing, and destruction of currency (paper money and coins) are conducted through coordination of BI and the Finance Ministry in an amount consistent with public demand projection. All currency processing must follow good governance and be audited by the Audit Board of Indonesia (BPK). Therefore, the opinion that BI will print money in COVID-19 mitigation efforts is in contravention of the best practice in prudent monetary policies and BI will not adopt such measure.
b.    Monetary Operation in Managing Liquidity of Money Market and Banks 
As mandated, BI controls inflation and stabilizes Rupiah exchange rate in line with the achievement of inflation target and also supports economic growth. Measures taken by BI are determining reference rate and implementing monetary operations (MO) to manage liquidity in money market and banks in line with BI’s policy measures to stabilize Rupiah exchange rate. Two of the MO implementation measures are MO expansion and MO contraction through repo transactions with the underlying SBN in possession.
c.    QE Policy of Bank Indonesia
One of the forms of QE is liquidity injection to banks in a total amount of Rp503.8 trillion with the following details:
·     January – April 2020 of Rp386 trillion, from SBN purchase in the secondary market from foreign investors of Rp166.2 trillion, bank’s term repo of Rp137.1 trillion, foreign currency swap of Rp29.7 trillion, and lowering Reserve Requirements (RR) in rupiah in January and April 2020 of Rp53 trillion.
·     May 2020 of Rp117.8 trillion from lowering rupiah RR of Rp102 trillion and non-application of additional reserve requirement obligation to meet Macroprudential Intermediation Ratio (MIR) of Rp15.8 trillion.
QE policy will effectively impacts the real sector with the support of fiscal stimulus, among others through implementation of social safety net, industrial incentive including people’s business loans (KUR) and other social aid programs as well as credit restructuring. Full QE mechanism is attached. 
Bank Indonesia will continue to strengthen coordination with the Government and Indonesian Financial Services Authority (OJK) to carefully monitor the dynamics of COVID-19 transmission and the economic impact on Indonesia over time, including the coordinated policy measures required to maintain macroeconomic and financial system stability, as well as solid and resilient economic growth.
Head of Communication Department
Onny Widjanarko
Executive Director
Information on Bank Indonesia
Tel. 021-131, email:


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