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 25, 2020

No. 21/17/DKom

The BI Board of Governors agreed on 20th and 21st March 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 ongoing efforts to strengthen the external stability of the economy, reduce the current account deficit to a manageable threshold in particular, while maintaining the attractiveness of domestic financial assets. Meanwhile, interest rate and exchange rate policies will continue to focus on external stability as Bank Indonesia implements other accommodative policies to stimulate domestic demand as follows:

  1. Maintaining a monetary operations strategy oriented towards increasing available liquidity by regular and scheduled term-repo transactions in addition to FX Swaps;
  2. Strengthening accommodative macroprudential policy by raising the Macroprudential Intermediation Ratio (MIR) from 80-92% to 84-94% in order to bolster bank financing extended to the corporate sector;
  3. Accelerating financial market deepening policy by: (i) strengthening market conduct through mandatory treasury certification for market players; and (ii) encouraging hedging instruments against domestic interest rate fluctuations through regulations concerning Rupiah Interest Rate Swaps (IRS) and Overnight Index Swaps (OIS); and
  4. Strengthening payment system policy to support economic activities and financial inclusion, namely by (a) expanding electronification of the social assistance program (Bansos), transportation sector and local government finance; and (b) preparing QR Code payment standardisation by incorporating the MPM model (Merchant Presented Mode) into QRIS (QR Indonesia Standard) in order to enhance interconnectivity and, therefore, support the digital economic and financial ecosystem.

Bank Indonesia will continue to strengthen coordination with the Government and other relevant authorities in order to maintain economic stability, particularly in terms of controlling inflation and current account deficit, while sustaining future economic growth momentum by catalysing domestic demand and maintaining external stability to stimulate exports, tourism and foreign capital investment.

Global economic growth continues to moderate with less financial market uncertainty. Economic growth in the United States decelerated as the effect of fiscal stimuli fades, labour productivity declines and business confidence retreats. Economic growth in Europe is expected to continue moderating on decreasing exports due to restrained demand from China, flagging business confidence and widespread uncertainty regarding the Brexit outcome. China’s economy is also experiencing slower growth as a result of postponed fiscal stimuli and the simmering trade tensions with the United States. The world economic outlook, therefore, is weighed down by lower international commodity prices, including oil. Meanwhile, advanced economies are adopting a more gradual approach to monetary policy normalisation, which has eased global financial market uncertainty. On one hand, the current global economic and financial dynamics represent a challenge in terms of stimulating faster export growth, yet on the other hand have drawn foreign capital flows to emerging market economies, including Indonesia.

At home, solid economic growth is predicted in the first quarter of 2019 on the back of domestic demand. Robust consumption growth is expected to endure, supported by maintained public purchasing power and consumer confidence, fiscal stimuli through social spending, as well as election spending. Investment has slowed slightly in the first quarter of 2019 in line with cyclical trends at the beginning of the year, yet investment growth is expected to regain momentum in subsequent periods due to infrastructure projects. Notwithstanding, the contribution of net exports has continued to decrease in line with global economic moderation and sliding commodity prices. Export declines are largely attributed to agriculture and mining as well as a number of manufacturing goods. Moving forward, the policy mix instituted by Bank Indonesia, the Government and other relevant authorities will continue to support domestic demand and maintain economic growth momentum. Consequently, Bank Indonesia projects economic growth in 2019 on the range 5.0-5.4%.

Indonesia’s balance of payments (BOP) is expected to improved in the first quarter of 2019, thus bolstering external resilience. The projection is based on a maintained influx of non-resident capital, which reached USD6.3 billion in February 2019. Meanwhile, the trade balance recorded a USD0.33 billion surplus in February 2019 as non-oil and gas imports, in the midst of non-oil and gas exports which also declined. Consequently, the position of reserve assets stood at USD123.3 billion at the end of February 2019, equivalent to 6.9 months of imports or 6.7 months of imports and servicing government external debt, which is well above the international standard of three months. Looking forward, policy synergy will constantly be improved in order to strengthen external resilience. Measures to stimulate exports and tourism as well as control imports will be maintained in 2019, thus maintaining the current account deficit within a manageable range of 2.5% of GDP. Furthermore, policy will also be directed towards attracting capital flows to offset the current account deficit.

The rupiah continues to appreciate as external sector performance improves. As of 19th March 2019, the rupiah strengthened 1.05% (ptp) or by an average of 0.85%, supported by a deluge of foreign capital inflows to the domestic financial markets. Most foreign capital flowed to the SBN market, contrasting the outflow booked in the stock market. Congruent with the promising external sector outlook, Bank Indonesia predicts rupiah stability in accordance with the currency’s fundamental value and maintained market mechanisms. To support exchange rate policy effectiveness and strengthen domestic financing, Bank Indonesia will accelerate financial market deepening efforts, targeting the money market and foreign exchange market.

Inflation is trending downwards and remains under control within the target corridor for 2019 at 3.5%±1% (yoy). The Consumer Price Index (CPI) experienced 0.08% (mtm) deflation or 2.57% (yoy) inflation in February 2019, down from 0.32% (mtm) or 2.82% (yoy) the month earlier. CPI deflation stemmed from deflationary pressures on volatile foods (VF) coupled with low core inflation and administered prices (AP) inflation. Volatile foods recorded deflation in line with seasonal trends. Meanwhile, core inflation was controlled through policy consistency by Bank Indonesia to anchor rational inflation expectations. Similarly, inflationary pressures on administered prices were mild due to lower fuel prices. Bank Indonesia will consistently maintain price stability and strengthen policy coordination with the Central and Regional Government in order to control low and stable inflation within the target range.

Financial system stability has been maintained as the intermediation function improves and the banking industry effectively contains credit risk. The Capital Adequacy Ratio (CAR) of the banking industry remained high at 23.1% in January 2019, accompanied by a low level of Non-Performing Loans (NPL), namely 2.6% (gross) or 1.2% (net). In terms of the intermediation function, the banking industry reported faster credit growth from 11.8% (yoy) in December 2018 to 12.0% (yoy) in January 2019, while maintaining relatively stable deposit growth at 6.4% (yoy) in January 2019 compared with 6.5% (yoy) in December 2018. The performance of public listed corporations improved in the reporting period, as reflected by increases in profitability and repayment capacity. Moving forward, Bank Indonesia perceives adequate space to expand credit growth without disrupting financial system stability considering that the credit cycle is below the optimal level with an outlook of solid demand. Bank Indonesia projects high growth of loans disbursed by the banking industry towards the upper end of the 10-12% (yoy) range, supported by deposit growth forecasted in the 8-10% (yoy) range.

The payment systems, both cash and noncash, remain uninterrupted. Cash payments posted positive growth in the reporting period with the position of currency in circulation growing 7.4% (yoy) in February 2019 and non-cash payments continuing to enjoy a faster uptake. Retail transactions through ATM/debit cards, credit cards and e-money accelerated to 15.3% (yoy) in January 2019, with e-money transactions growing by 66.6% (yoy). ATM/debit card transactions were still dominated by retail payments, accounting for 94.8% of total retail payment system transactions and growing by 15.4% (yoy). The use of e-money is gaining popularity, primarily as a payment instrument for different transportation modes and e-commerce. Bank Indonesia will continue to strengthen the role of the payment system to support productive economic activities.

Jakarta, 21st March 2019

Onny Widjanarko
Executive Director



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