Statement by the Governor of Bank Indonesia: Bank Indonesia Keeps BI Rate at 8.25% - Bank Sentral Republik Indonesia
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December 02, 2020
No. 9/30/PSHM/Humas

In the Board of Governors' Meeting convened today, Bank Indonesia decided to keep the BI Rate on hold at 8.25%. This decision was taken after an evaluation of the outlook for achieving the 6%±1% and 5%±1% inflation target for 2007 and 2008 and of the performance and prospects of the national economy.


As of July 2007, the Indonesian economy was marked by ongoing expansion accompanied by relative stability in macroeconomic indicators and the financial system. The inflation outlook remains within the established inflation targeting range, although Bank Indonesia policymaking has also taken note of the present dynamics on the international financial market.  Bank Indonesia will closely monitor these developments and position itself to anticipate any potential for impact on achievement of the inflation target and national economic growth momentum.


In Q3/2007, the economy is forecasted to grow 6.2% on the strength of mounting exports and improved investment and private consumption. Public purchasing power, consumer confidence and positive business perceptions are all showing steady improvement. The supply-side is still capable of adequate response to demand-side expansion through expanded production capacity and higher capacity utilisation.  Export growth is forging ahead, driven primarily by escalating world market prices for oil and some non-oil and gas commodities. Indonesia's balance of payments is set to post another surplus, boosting international reserves to yet higher levels. At the end of July, international reserves had risen to USD51.9 billion, equivalent to 5.2 months of imports and servicing of official foreign debt.


Concerning price movements, CPI and core inflation in July were again subdued and on a downward trend despite slight increases over the preceding month. Annualised CPI and core inflation were recorded at 6.06% and 5.75%, up from the June figures of 5.77% and 5.40%. The higher inflation in July is explained by inflation in volatile foods. In addition, increased imported inflation, educational expenses and home rentals contributed to added core inflation.


Developments in the global economy, such as escalating oil prices, rising inflation in some countries in the region and deteriorating conditions in the US sub-prime mortgage market impacted regional economic conditions and financial markets, with Indonesia no exception. At the end of July 2007, these developments bore down on the rupiah. The currency closed July at Rp 9,215 to the USD, having weakened 1.99% from Rp 9,035 at end-June. Nevertheless, the rupiah maintained low average volatility at 0.47% in July compared to 1.36% previously. 


Despite coming under temporary pressure from the latest global financial market developments, the Jakarta Composite Index closed July in a stronger position compared to June 2007. Reinforcing this was an escalating trend in private sector bond issues on the global and domestic market that provided alternative financing for real sector growth while attesting to the overall bright outlook for the economy.


Banking indicators again showed steady improvement, reflecting strong financial system stability and contribution to recovery in the real sector. Credit expansion in June 2007 reached a significant Rp 38.5 trillion, up 4.4% from the preceding month. This represented the highest rate of expansion in 2007 with annualised credit expansion rising to 19.4%. The brisk pace was also predicted to carry forward into July 2007 and preliminary figures for that month indicate credit expansion at Rp 10.5 trillion. In addition, work currently in progress on government and private sector infrastructure projects will also stimulate more rapid credit expansion. Concerning earning asset quality, NPLs ratios for the banking system fell slightly from 6.7% in June to 6.4% (gross) and from 3.1% to 2.9% (net).


Bank Indonesia predicts that the acceleration in economic growth will be sustained in the future. Indonesia’s economic growth is forecasted to reach 6.2% in 2007 and 6.5% in 2008. Private consumption, exports and investments are set to maintain an upward growth trend. Supply-side capacity for response to increased demand is also expected to improve. These conditions, coupled with a stable exchange rate, are envisaged as keeping CPI inflation on a downward trend. For 2007 and 2008, CPI inflation is projected within the established inflation targeting range.


Bank Indonesia is keeping a close watch for the emergence of some global risks that could affect macroeconomic stability and the financial sector.  The structure of Indonesia’s capital inflows, still dominated by short-term portfolio investments, calls for continued vigilance.


In the opinion of Bank Indonesia, the 8.25% BI Rate is still adequate for delivering further economic stimulus. At this level, the BI Rate allows banks considerable leeway for lowering their lending rates in order to promote financing for the real sector. On the other hand, the policy decision will also minimise negative impact from any upheavals that may occur in the domestic economy.   


Looking ahead, monetary policy will remain focused on achievement of the medium and long-term inflation target in support of sustainable economic development. To this end, up to date evaluation and projection of economic conditions and identification of possible internal and external risks will set the stage for the future direction of monetary policy.


In the banking system, the ongoing promotion of the bank intermediary function and monitoring of the bank consolidation programme will be taken forward with intensified momentum. Bank Indonesia will soon issue regulations concerned with corporate bond holdings in the banking system in order to promote the bank intermediary function and financial market deepening. In addition, Bank Indonesia will maintain the existing close, harmonious coordination with the Government and continue implementing a cautious, measured monetary policy while keeping a careful watch on emerging dynamics within the context of the national and global economy.


Jakarta, 7 August 2007



Budi Mulya





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