Macroeconomic and Financial System Stability Holding Firm: Bank Indonesia Keeps BI Rate at 8.25% - Bank Sentral Republik Indonesia
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May 27, 2019

No. 9/32 /PSHM/Humas


In the Board of Governors' Meeting convened today, Bank Indonesia decided to maintain the BI Rate at 8.25%. This decision follows a comprehensive evaluation of progress toward the inflation target of 6%+1 and 5%+1% for 2007 and 2008, developments in the economy and financial sector and relevant projections, including identification of risks.

 

“Overall macroeconomic and financial system stability is holding firm. The economy as a whole is advancing in an expansionary phase marked by improved equilibrium.  This combined with the continued stability in the exchange rate reinforces confidence in the outlook for CPI inflation within the prescribed targeting range at 6+1% for 2007 and 5±1% for 2008,” explained Governor of Bank Indonesia Burhanuddin Abdullah.

 

 “The recent turbulence in domestic prices, even though a seasonal phenomenon, still calls for close monitoring. Fundamental improvements in market structures for distribution of staple goods will go a long way towards the common effort to maintain macroeconomic stability for the future,” added Burhanuddin.

 

CPI inflation edged higher in August compared to the previous month, although core inflation was stable. In annual terms, CPI inflation came to 6.51%, up from 6.06% in July. However, core inflation was relatively unchanged at 5.66%, compared to the previous month’s level of 5.75%. The increased August inflation resulted largely from an inflationary spike in volatile foods, spurred by rising prices for cooking oil, eggs and rice. Additionally, inflation in administered prices moved up slightly in response to increased kerosene prices. 

 

In Indonesia’s balance of payments again recorded a surplus in August despite a reduced estimated surplus in the capital and financial account following a surge in capital outflows. The capital reversal was linked mainly to the knock-on effects of the ongoing troubles in the US subprime mortgage market. International reserves at end-August 2007 stood at USD 51.4 billion, equivalent to 5.3 months of imports and servicing of official debt. Responding to the turmoil in the US subprime mortgage market, the monthly average value of the rupiah slipped 3.3% during August from Rp 9,071 to Rp 9,372 to the US dollar. Nevertheless, the average exchange rate for 2007 (January-August) remained at only Rp 9,084, within the range projected by Bank Indonesia. “Despite the depreciation, the rupiah experienced very little volatility in August,” said Burhanuddin.

 

In Bank Indonesia’s opinion, the financial market turmoil has not impacted economic expansion.  Economic growth in Q3/2007 is forecasted at 6.2%. Driving this growth will be even stronger performance in exports, private consumption and investment. Improvement in investment will be buoyed mainly by investor optimism with the support of bank financing.   On the supply side, increased production means that output capacity has been able to respond adequately to rising demand.

 

Despite pressure bearing down on Indonesia’s financial markets and the exchange rate, financial system stability remains firm. Various banking indicators point to the absence of risks to banking system stability. Interest rates on loans and deposits continued to decline. In July, interest rates on working capital credit eased to 13.71%, down from 13.88% in the preceding month. Rates for investment credit and consumption credit similarly came down to 13.82% and 16.68% from the previous positions of 13.99% and 16.91%. Alongside this, banks also lowered their rates for deposits.   In July, the average interest rate for 1-month time deposits at commercial banks was 7.26%, down from the previous month's 7.46%.  The bank intermediary function has steadily improved, as indicated by the mounting trend in loan disbursements with annual growth currently at 20.73%. Following the substantial Rp 38.5 trillion expansion in June 2007, credit widened further by Rp 11.4 trillion in July, bringing total outstanding credit at end-July 2007 to Rp 915.6 trillion.

 

“Bank Indonesia will closely monitor the impact on the domestic economy from the present difficulties in the subprime mortgage market and the likelihood of a US economic slowdown.  In this regard, Bank Indonesia will maintain its prudent monetary policy stance aimed towards achievement of the medium-term inflation target for sustained improvement in economic growth,” added Burhanuddin Abdullah.

 

Bank Indonesia will keep working in close coordination with the Government for the common goal of sustainable development. In addition, BI will adhere to a prudent, measured course in monetary policy while carefully monitoring the unfolding dynamics in the economy.

 

 

Jakarta, 6 September 2007

OFFICE OF THE GOVERNOR

 

Budi Mulya

Director

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