BI 7-Day Reverse Repo Rate Lowered 25 bps to 5,50%: Stability Maintained on Pre-Emptive Measures to Stimulate Growth - Bank Sentral Republik Indonesia
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September 18, 2019


The BI Board of Governors agreed on 21st and 22nd August 2019 to lower the BI 7-day Reverse Repo Rate by 25 bps to 5,50%, Deposit Facility (DF) rates lowered 25 bps to 4,75% and Lending Facility (LF) rates lowered 25 bps to 6,25%. The policy is consistent with low inflation projected below the midpoint of the target corridor, attractive returns on domestic financial investment assets that support external stability, as well as a pre-emptive measure to safeguard economic growth momentum moving forward against the impact of global economic moderation. The monetary operations strategy remains oriented towards ensuring adequate liquidity and increasing money market efficiency, thus strengthening the transmission of accommodative monetary policy. Bank Indonesia will maintain an accommodative macroprudential policy stance in order to stimulate bank lending and expand economic financing, including green finance. Payment system policy and financial market deepening will also be strengthened in order to foster economic growth. Moving forward, Bank Indonesia will maintain an accommodative policy mix in line with low inflation expectations, maintained external stability and the need to build economic growth momentum. Furthermore, Bank Indonesia will continue to strengthen coordination with the Government and other relevant authorities in order to maintain economic stability and catalyse domestic demand, while boosting exports and tourism and attracting foreign capital inflows, including foreign direct investment (FDI).

Ongoing trade tensions coupled with geopolitical risks are undermining world trade volume and global economic growth.  A softening of growth is predicted in the United States as exports decline along with non-residential investment. Flatter economic growth in Europe, Japan, China and India is the result of restrained external sector performance and dwindling domestic demand. Global economic moderation continues to suppress commodity prices, including the global oil price. In response, several countries have introduced fiscal stimuli and loosened monetary policy, including the US Federal Reserve that decided to lower its policy rate in July 2019. In addition, global financial market uncertainty remains, which has precipitated a shift in global funds to safer assets, such as government bonds in the United States and Japan, as well as gold. Prevailing global economic dynamics must be considered when striving to spur economic growth and maintain foreign capital inflows to support external stability.

The policy mix instituted by Bank Indonesia and the Government has effectively maintained economic growth momentum at home.  In the second quarter of 2019, national economic growth stood at 5.05% (yoy), retreating slightly from 5.07% (yoy) in the previous period due to the ongoing export contraction. Meanwhile, stronger consumption and stable investment prompted an uptick of domestic demand, which is underpinning national economic growth. Spatially, the key drivers of national economic growth are the regions of Sumatra, Kalimantan as well as Bali and Nusa Tenggara, coupled with economic stability in Java. Moving forward, Bank Indonesia projects solid economic growth on the back of domestic demand, high investment growth in particular. National economic growth momentum is supported by an accommodative policy mix implemented by Bank Indonesia combined with fiscal policy and structural reforms introduced by the Government. For the year, economic growth in 2019 is projected below the midpoint of the 5.0-5.4% range before increasing towards the middle of the 5.1-5.5% range in 2020.

Indonesia's Balance of Payments demonstrated how Indonesia is maintaining external resilience despite strong global headwinds and seasonal trends at home.  Sound BOP performance in the second quarter of 2019 was supported by a capital and financial account surplus totalling USD7.1 billion in line with the positive domestic economic outlook and attractiveness of domestic investment instruments. Meanwhile, the current account deficit increased from USD7.0 billion (2.6% of GDP) in the first quarter of 2019 to USD8.4 billion (3.0% of GDP) in the reporting period, exacerbated by seasonal trends to repatriate dividends and service interest payments on external debt, along with the impact of lower world trade volume and international commodity prices. Consequently, the BOP recorded a USD0.4 billion surplus in the first semester of 2019 despite amassing a USD2.0 billion deficit in the second quarter of 2019. Moving forward, Bank Indonesia expects to maintain external resilience, backed by a capital and financial account surplus together with a manageable current account deficit, which is projected in 2019 and 2020 with in the 2.5–3.0% of GDP range. The position of reserve assets in Indonesia remains solid, recorded at USD125.9 billion at the end of July 2019, equivalent to 7.3 months of imports or 7.0 months of imports and servicing government external debt, which is well above the international adequacy standard of around three months. Moving forward, Bank Indonesia will continue to strengthen policy synergy with the Government and other relevant authorities in order to bolster external resilience, including efforts to attract foreign direct investment (FDI).

The rupiah continues to move in line with the currency's fundamental value, thereby reinforcing external resilience.  Point-to-point, the rupiah gained 0.8% in July 2019 compared with the level recorded at the end of June 2019, and by 1.3% compared with the June average in 2019. The stronger rupiah was supported by an influx of foreign capital inflows based on the positive perception of non-resident investors regarding the national economic outlook as well as the attractiveness of domestic financial assets. Mirroring global currency movements, the rupiah depreciated in August 2019, weighed down by global financial market uncertainty as trade tensions between the United States and China escalated, triggering 1.6% (ptp) depreciation or 1.4% on the July average in 2019. As of 21st August 2019, the rupiah appreciated 0.98% (ptp) compared with conditions at the end of 2018. Moving forward, Bank Indonesia expects stable rupiah exchange rates in line with maintained market mechanisms. Furthermore, projected currency stability is supported by the prospect of foreign capital inflows to Indonesia on sound domestic economic performance and attractive returns, as well as the favourable impact of looser monetary policy in advanced economies. To support exchange rate policy effectiveness and strengthen domestic financing, Bank Indonesia will continue to accelerate financial market deepening efforts, targeting the money market and foreign exchange market in particular.

Low and stable inflation has been maintained.  Consumer Price Index (CPI) inflation in July 2019 stood at 0.31% (mtm), falling from 0.55% (mtm) the month earlier. Annually, headline inflation in July 2019 was recorded at 3.32% (yoy), up slightly from 3.28% (yoy) in the previous period. Furthermore, core inflation was also kept under control due to anchored inflation expectations in line with policy consistency by Bank Indonesia to maintain price stability, manage aggregate demand and minimise the impact of global prices. Administered prices recorded deflation in the reporting period as a result of the ongoing impact of readjustments to airfares and corrections to intercity and railway fares after the Eid-ul-Fitr festive season. Meanwhile, inflation of volatile foods has slowed, although the prices of various horticultural commodities continue to demand attention. Bank Indonesia will continue to consistently maintain price stability and strength policy coordination with the central and regional governments to ensure low and stable inflation despite potential weather disruptions due to a protracted dry season that could undermine the supply of foodstuffs. Bank Indonesia projects inflation in 2019 below the midpoint of the 3.5%±1% target corridor and within the target range for 2020, namely 3.0%±1%.

A stable and efficient money market has been maintained, thus supporting monetary policy transmission.  Adequate liquidity was maintained in the interbank money market, as reflected by a high average daily transaction volume totalling Rp18.96 trillion, which helped to sustain low overnight interbank rate volatility. The banking industry also effectively maintained adequate liquidity in the banking system, as confirmed by a ratio of liquid assets to deposits of 19.1% in June 2019, up from 18.5% in May 2019. The overnight interbank rate, as the operational target of monetary policy, maintained convergence with the policy rate, which was set at 5.75% in July 2019. Furthermore, a conducive interbank money market supports effective monetary policy transmission. The weighted average deposit rate was recorded at 6.66% in July 2019, falling 3 basis points on the level posted the month earlier. In addition, the banks have begun to lower lending rates on all credit lines. The returns on government and corporate bonds fell 13 basis points and 15 basis points respectively in July 2019. Moving forward, Bank Indonesia will continue to ensure adequate liquidity and increase efficiency in the money market, while strengthening the transmission of accommodative monetary policy.

Financial system stability has been maintained, accompanied by contained credit risk and a solid intermediation function.  Bank resilience was confirmed by a high Capital Adequacy Ratio (CAR) of 22.5% in June 2019, coupled with a low level of non-performing loans at 2.5% (gross) or 1.2% (nett). Meanwhile, the bank intermediation function remains positive despite credit growth decelerating from 11.1% (yoy) in May 2019 to 9.9% (yoy) in June 2019. In contrast, deposit growth accelerated to 7.4% (yoy) in June 2019 from 6.7% (yoy) the month earlier. Financial system stability was also supported by the sound performance of public listed corporations, buoyed by maintained repayment capacity. Moving forward, Bank Indonesia expects sufficient space to maintain an accommodative macroprudential policy stance in order to stimulate credit growth without disrupting financial system stability. Bank Indonesia projects growth of outstanding loans disbursed by the banking industry in the 10-12% (yoy) range in 2019 and 11–13% (yoy) in 2020, with deposit growth predicted at around 7-9% (yoy) in 2019 and 8–10% (yoy) in 2020.

The payment systems, both cash and non-cash, remain uninterrupted.  The position of currency in circulation grew 5.9% (yoy) in July 2019, while non-cash payments using ATM/debit cards, credit cards and electronic money increased 10.5% (yoy) in the second quarter of 2019, dominated by ATM/debit card instruments with a 97.0% share. Electronic money continues to enjoy precipitous growth, reaching 241.2% (yoy) in the reporting period, further confirming the public's growing preference towards digital currencies. Bank Indonesia constantly strives to expand the payment system’s role in supporting economic growth, including actively backing the transformation towards a digital economy and finance. Moreover, the current electronification program has been strengthened by coordination across authorities in terms of social aid program (bansos) disbursements, local government financial transactions and integrated transportation modes. Bank Indonesia also supports the transformation of micro, small and medium enterprises (MSME) towards digital payment platforms in terms of payments, finance and trade. QR Code Indonesian Standard (QRIS) implementation, which was launched on 17th August 2019, will be accelerated in order to garner broader public acceptance when using digital payment services. Furthermore, digital innovation will also be strengthened through sandbox revitalisation at Bank Indonesia towards an innovation lab, as well as industry and regulatory sandboxes.

Jakarta, 22nd August 2019


Junanto Herdiawan



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