BI Rate held at 7.50% - Bank Sentral Republik Indonesia
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October 25, 2020
No. 15/ 50 /DKom

It was decided at the Bank Indonesia Board of Governors’ Meeting (RDG) on 12th December 2013 to maintain the BI Rate at a level of 7.50%, with the rates on the Lending Facility and Deposit Facility held at 7.50% and 5.75% respectively. Such policy is consistent with ongoing efforts to bring inflation back towards the target corridor of 4.5±1% in 2014 as well as to reduce the current account deficit to a more sustainable and sound level. Bank Indonesia also further deepened the rupiah and foreign exchange money markets through implementation of a mini Master Repo Agreement between a number of banks and broadened the scope of medium and long-term hedging swaps between the banks and Bank Indonesia. Looking forward, Bank Indonesia will continue to monitor a range of risks, including global economic uncertainty that could rapidly mushroom. Bank Indonesia consistently strives to bolster its monetary and macroprudential policy mix as well as policy coordination with the Government in order to control inflation and reduce the current account deficit, including policy to ameliorate the structure of the economy.

Bank Indonesia predicted that the global economy would improve during the past month of November 2013 in line with current projections, despite widespread uncertainty that requires constant vigilance. The economies of advanced countries like the US, countries in Europe and Japan showed positive signs of development. Improvements were also noted amongst economic indicators for emerging markets, like China and India. Notwithstanding, Bank Indonesia will remain vigilant of the ongoing shift in the global economic constellation, identified by a slowdown in developing countries coupled with stronger growth in advanced countries, as well as the projected end of rising international commodity prices. Bank Indonesia will also remain watchful of the planned tapering policy by the Federal Reserve and will bolster the ongoing policy response. The shift in the global economic landscape requires further observation to avoid a potential downturn in the performance of the external sector in Indonesia, transmitted through the trade channel and/or the financial channel.

Domestic economic growth will continue to follow a decelerating trend during the final quarter of the current year. The domestic economic slowdown is blamed on weaker investment activity, particularly non-construction investment. Meanwhile, the slowdown in consumption will be offset by additional spending in the run up to the upcoming General Election as well as government spending. Bank Indonesia considers the slowing domestic economic trend as congruent to stabilization policy instituted by the Government and Bank Indonesia taken to bring economic expansion in Indonesia to a more sustainable and sound level. Against this backdrop, Bank Indonesia expects domestic economic growth in 2013 to remain in line with previous growth projections of 5.5-5.9%. For 2014, Bank Indonesia forecasts slower economic growth than previously projected at the lower end of the range of 5.8-6.2%. The projections are harmonious with the ongoing economic consolidation process instituted in response to a number of developments in the global and domestic economies.

Externally, there is evidence of a further improvement in the Indonesia Balance of Payments (BoP) during the final quarter of 2013. BoP improvements stem from a narrower current account deficit in line with gains in the balance of trade, which reregistered a surplus in October 2013. Furthermore, foreign capital inflows in the form of direct investment and portfolio investment will continue a surplus and help offset the current account deficit. Foreign exchange reserves at the end of November 2013 amounted to US$97.0 billion, equivalent to 5.3 months of imports and servicing external debt, well above the international minimum standard of around 3 months of imports.

The rupiah exchange rate faced pressures again in November 2013. Point-to-point, the rupiah slid 5.77% (mtm) to Rp11,963 per US dollar and on average the rupiah weakened 2.42% (mtm) to Rp11,624 per US dollar. Rupiah depreciation primarily stems from negative sentiment concerning the planned tapering off of monetary stimuli by the Federal Reserve as well as its impact on the current account deficit in Indonesia. Bank Indonesia considers current rupiah depreciation commensurate with the performance of other currencies in the region. Looking ahead, Bank Indonesia will continue to maintain rupiah exchange rate stability in line with its fundamentals, thereby supporting controlled economic consolidation.

The rate of inflation was well managed and followed a downward trend during the reporting month of November 2013. Headline inflation was 0.12% (mtm) in November 2013 or 8.37% (yoy). Despite a moderate 0.09% (mtm) increase in the rate of inflation from the previous month, inflation in November was lower than its historical average over the past five years. Low inflation is the result of price corrections of volatile foods coupled with lower core inflation stemming from lower international prices. Bank Indonesia projects inflation for the year of 2013 as a whole to remain below 8.5% and subsequently drop further in 2014 to within the target corridor of 4.5+1%.

Financial system stability was maintained thanks to solid banking industry resilience. The Capital Adequacy Ratio (CAR) remained well above the minimum threshold of 8% at 18.4%, while the ratio of non-performing loans (NPL) was low at just 1.91% in October 2013. Maintaining banking sector resilience amid a slowdown in credit growth is a positive achievement. Credit growth in October 2013 was 22.2% (yoy), which is slower than the 23.1% (yoy) posted in the previous month. Bank Indonesia considers the slowdown in credit growth in line with the general downturn in economic growth, which precipitated a hike in domestic interest rates. In future, Bank Indonesia will continue to monitor financial system stability, including banking industry resilience, in order to shore up the economic consolidation process towards the goal of an economy that is more balanced and sound.

Jakarta, 12th December 2013
Communication Department

Difi A. Johansyah
Executive Director


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