BI Rate remains at 6.75% - Bank Sentral Republik Indonesia
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August 21, 2019

 No. 13/ 7 /PSHM/Humas

In the Board of Governors' Meeting convened on 4 March 2011, Bank Indonesia decided to hold the BI Rate at 6.75%. This decision does not alter the tight bias in the Bank Indonesia monetary policy stance aimed at curbing the persistently high level of inflationary pressure. Bank Indonesia will keep a close watch on future developments in inflation and respond with carefully timed and measured adjustments in the BI Rate. Measures to curb imported inflation from escalating global commodity prices have been reinforced by ensuring added headroom for appreciation in the rupiah in line with improving global economic fundamentals. Other actions will strengthen liquidity control through a combination of macroprudential polices and monetary operations while allowing for reasonable banking liquidity needs. Among these are the new LDR-based and foreign currency statutory reserve requirements, effective from 1 March 2011. With the combination of this monetary and macroprudential policy mix and the unswerving government commitment mitigate high food prices, Bank Indonesia is confident that CPI inflation can be curbed in line with the target of 5% ±1% for 2011 for 2011 and 4.5% ±1% for 2012.

The Board of Governors Meeting envisages steady improvement in the global economic outlook, despite concerns of rising inflationary pressure from high global oil and food prices. Inflationary pressure is on the rise not only in emerging market countries, but also developed nations. While emerging markets have responded to mounting inflationary pressure with monetary tightening measures, advanced economies have now begun to follow suit. The improving outlook for the global economy has boosted the fortunes of the domestic economy, mainly through recent growth in exports. Similarly, growth in imports has been driven by robust domestic and external demand. Complementing this is the continued expansion in household consumption and investment, although less vigorous than in the preceding quarter. With performance bolstered by these developments, the current account is forecasted to post a sizeable surplus in Q1/2011.  The capital and financial account is also predicted to chart another surplus in line with the still high rate of capital inflows, including FDI.  In response to these developments, the international reserves position on 28 February 2011 reached 99.6 billion US dollars, equivalent to 6.1 months of imports and servicing of official external debt. Following this, on 3 March 2011, reserves were recorded at 101.8 billion US dollars, equivalent to 6.2 months of imports and servicing of official external debt.

The rupiah resumed appreciation in February 2011 after a brief pause in January 2011. This was driven in part by renewed inflows of capital influenced by positive foreign investor perceptions of the strength of Indonesia's economic fundamentals. Nevertheless, the rupiah gains also represented a positive response to the BI Rate increase and the Bank Indonesia policy to ensure further headroom for rupiah appreciation under its strong commitment to inflation control. During February 2011, the rupiah gained 2.5% (ptp) to close at Rp 8,818 to the US dollar in the 28 February 2011 position. So far, the rupiah appreciation has not impacted Indonesia's exchange rate competitiveness, given the appreciation across the region during this period with some currencies charting even stronger gains. 

CPI inflation eased slightly in February 2011, despite the risk of persistently high levels of future inflationary pressure. CPI inflation in February 2011 reached 0.13% (mtm) or 6.84% (yoy), down from the preceding month. Price corrections for rice and chilli peppers following improvement in supply as a result of government actions contributed to 0.48% (mtm) deflation in the volatile foods category. Alongside this, administered prices were again marked by only minimum inflationary pressure with increases of 0.32% (mtm) or 5.34% (yoy). Nevertheless, Bank Indonesia is keeping a close watch on a renewed increase in core inflation, now recorded at 0.31% (mtm) or 4.36% (yoy), particularly in regard to the impact of high volatile foods inflation and rising international commodity prices. Indications of inflation expectations on financial markets began to ease, although still high in response to the increase in the BI Rate, while inflation expectations among producers, sellers and consumers have been largely unaffected. For this reason, Bank Indonesia will take further monetary policy and macroprudential actions, including measures to curb the effects of imported inflation through strengthening of the rupiah.

Financial system stability remained secure in keeping with sustained improvement in the banking intermediation function and curbing of bank liquidity. The stable condition of the banking industry is underpinned by comfortably safe levels of capital and liquidity, reflected in the high capital adequacy ratio (CAR) and subdued non-performing loans (NPLs) gross at below 5%. Further improvement has taken place in banking intermediation, a development reflected in more robust credit expansion in January 2011 at 24.6% (yoy) bolstered by growth in all lending categories including credit to MSMEs. No indications suggest that the BI Rate hike in February 2011 was followed by increases in bank interest rates. In related developments, the prescribed levels of LDR-based and foreign currency statutory reserves were duly maintained in positions reported for 1 March 2011.

The Board of Governors places great importance on the strengthening of policy coordination with the Government over inflation control. Future inflationary pressure continues to pose substantial risk, mainly in relation to high international commodity prices and planned government policy actions for some strategic commodities, including a reduction in the fuel subsidy. A key element of the price stabilisation and control pursued jointly by Bank Indonesia and the Government in involves policy coordination in curbing this risk, including coordination within the Inflation Control Team forums at the central level (TPI) and in the regions (TPIDs). Bank Indonesia is appreciative of the actions taken by the Government in stabilising food prices and looks forward to further strengthening of these measures. In this regard, the second National Coordinating Meeting of Regional Inflation Control Teams (TPIDs) to be convened in the near future is intended to consolidate policy actions in reinforcing the supply and distribution of strategic commodities.

The complete report of the deliberations of the Board of Governors’ Meeting for March 2011, featuring macroeconomic and monetary policy developments, will be presented in the Monetary Policy Review (MPR) on the Bank Indonesia website.  

Jakarta, 4 March 2011
Office of The Governor

 

Difi A. Johansyah
Head of Bureau

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