BI 7-Day Reverse Repo Rate Held at 6.00%: Strengthening External Stability, Maintaining Economic Growth Momentum - Bank Sentral Republik Indonesia
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November 20, 2019

No. 21/12/DKom

The BI Board of Governors agreed on 20th and 21st February 2019 to hold the BI 7-Day Reverse Repo Rate at 6.00%, while also maintaining the Deposit Facility (DF) and Lending Facility (LF) rates at 5.25% and 6.75%, respectively. The decision is consistent with efforts to strengthen external stability, especially to control the current account deficit within a manageable threshold and maintain the attractiveness of domestic financial assets. Furthermore, Bank Indonesia also institutes a monetary operations strategy to increase liquidity, to boost financing in the banking sector. Moving forward, Bank Indonesia will undergo accommodative macroprudential policy and strengthen payment system policy to expand economic financing. Coordination with the Government and other relevant authorities are increased in order to maintain economic stability, to maintain economic growth momentum.

The global economy continues to slow down, with less uncertainty in the global financial market. US economic growth slowed down, due to limited fiscal stimuli, structural labour market issues, and reduced market confidence. Europe’s economic growth slowed down, amongst others due to the ongoing economic and financial structural issues, sluggish exports and uncertainty plaguing the Brexit. In China, economic growth is hampered in line with downcast exports due to the trade tension with the US and lower domestic demand due to the ongoing deleveraging process. Congruent with the uncertain global economic outlook, international commodity prices are sliding, including the global oil price and monetary policy normalisation in advanced economies that has relatively moderated, with less uncertainty in the global financial market. Accordingly, the US Federal Reserve is now expected to ease the pace of gradual Fed Fund Rate (FFR) hikes and pare back planned balance sheet reductions. The recent updates in the global economy and finances has generated challenges to export, yet also increased foreign capital flows to developing economies, including Indonesia.

National economic growth momentum has been maintained on the back of domestic demand. Solid economic growth in Indonesia reached 5.18% (yoy) in the three months to December 2018, up from 5.17% (yoy) in the previous period. The economy continues to expand on resilient domestic demand in line with increasing household consumption and consumption by non-profit institutions serving households (NPISH). Investors remain upbeat on the domestic economic outlook, which has fed through to strong investment performance. Meanwhile, net exports are negative, weighed down by global economic softness and falling commodity prices. Regionally, economic growth has accelerated in Java and Kalimantan in line with vibrant agricultural, services and mining activities. Consequently, economic growth in Indonesia accelerated from 5.07% (yoy) in 2017 to 5.17% (yoy) in 2018, representing the fastest rate recorded in the past five years. Moving forward, Bank Indonesia projects solid economic growth for 2019 in the 5.0-5.4% range, bolstered by household and NPISH consumption as well as strong investment.

Indonesia’s balance of payments (BOP) is improving, thus supporting external sector resilience. In the final quarter of 2018, the BOP amassed a USD5.4 billion surplus on a significant gain in the capital and financial account in line with non-resident investors’ favourable perception of the national economic outlook and dissipating global uncertainty. Meanwhile, the current account deficit stood at USD9.1 billion in the fourth quarter of 2018, equivalent to 3.57% of GDP. For the year, however, the current account deficit has remained within a manageable threshold at 2.98% of GDP. In January 2019, Indonesia’s trade balance experienced a USD1.16 billion deficit as a corollary of dwindling global demand against a backdrop of persistently strong domestic demand. Foreign capital inflows were maintained in January 2019, recorded at USD2.2 billion, which continued into February 2019. Consequently, the position of reserve assets was solid at USD120.1 billion at the end of January 2019, equivalent to 6.7 months of imports or 6.5 months of imports and servicing government external debt, which is well above the international standard of three months. Bank Indonesia expects the balance of payments to regain momentum looking ahead, backed by a manageable current account deficit and maintained foreign capital inflows, which will continue to reinforce external sector resilience. Furthermore, Bank Indonesia will continue to enhance coordination with the Government in order to strengthen external sector resilience by reducing the current account deficit to around 2.5% of GDP in 2019, amongst others.

The Rupiah appreciated, thus supporting economic stability. Point to point, the Rupiah gained 3.63% (ptp) in the fourth quarter of 2018 compared with conditions at the end of the previous period, boosted by a positive balance of payments. The strong Rupiah persisted into January 2019, appreciating another 2.92%, with the trend continuing into February 2019 on the back of non-resident capital inflows to domestic financial markets, drawn by solid economic fundamentals as well as attractive on domestic financial assets and less global economic uncertainty. Bank Indonesia believes that the Rupiah will remain stable, in line with market mechanisms.

Inflation is low and stable within the target corridor for 2019 at 3.5%±1%. CPI inflation in January 2019 was recorded at 0.32% (mtm) or 2.82% (yoy), down from 0.62% (mtm) or 3.13% (yoy) the month earlier. Midler price pressures on volatile foods (VF) and deflation of administered prices (AP) have contributed to lower headline inflation. VF inflation declined beyond its historical average on corrections to food prices, while administered prices were dragged down by lower non-subsidised fuel prices and cheaper train fares. Core inflation was kept under control despite a moderate uptick in line with seasonal trends, edged up by house rental prices and higher wages. Looking ahead, Bank Indonesia will consistently maintain price stability and strengthen policy coordination with the Central and Regional Government to maintain low and stable inflation, which is projected within the inflation target of 3.5%±1% in 2019.

Financial system stability has been maintained as the bank intermediation function improves and the banking industry effectively contains credit risk. The Capital Adequacy Ratio (CAR) of the banking industry remained high at 22.9% and the Liquidity Ratio at 19.3% in December 2018. In addition, the banking sector maintained a low level of Non-Performing Loans (NPL), namely at 2.4% (gross) or 1.0% (net). In terms of the intermediation function, the banking industry reported faster credit growth from 8.2% (yoy) in 2017 to 11.75% (yoy) in 2018, while deposit growth decreased from 9.4% (yoy) in 2017 to 6.5% (yoy) in 2018. On the other hand, economic financing through the financial markets, such as initial public offerings (IPO) and rights issues, corporate bonds, Medium-Term Notes (MTN) and Negotiable Certificates of Deposit (NCD), totalled Rp207.8 trillion (gross) in 2018, down from Rp299.4 trillion (gross) in 2017. Bank Indonesia projects credit growth in 2019 at 10-12% (yoy), while predicting deposit growth in the 8-10% (yoy) range. Moving forward, Bank Indonesia will undergo accommodative macroprudential policy to boost economic financing to maintain financial system stability, while in coordination with the relevant authorities.

The payment systems, both cash and noncash are uninterrupted. In terms of cash payments, the position of currency in circulation increased 7.8% (yoy) in the fourth quarter of 2018 compared with 10.7% (yoy) in the previous period. Large value noncash payments, settled through the Bank Indonesia – Real Time Gross Settlement (BI-RTGS), and small value payments, settled through the National Clearing System (SKNBI), runs smoothly. Meanwhile, retail transactions through ATM/debit cards, credit cards and e-money accelerated from 12.1% (yoy) to 13.8% (yoy) in the final quarter of 2018. E-money transactions maintained solid growth at 218.9% (yoy) in the reporting period, albeit moderating from 300.4% (yoy) previously. Online transactions via digital banking achieved a faster pace of growth, however, climbing from 41.1% (yoy) to 44.4% (yoy). The impressive performance of e-money and digital banking is associated with growing consumer propensity towards Fintech platforms and e-commerce as well as uptake of e-money in the transportation sector. Bank Indonesia will continue to strenghten financial systems policy in order to broaden economic financing while continue to prioritise consumer protection and maintain macroeconomic stability.

Jakarta, February 21st, 2019
COMMUNICATION DEPARTEMENT

Agusman
Executive Director

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