BI Rate Maintained at 5,75% - Bank Sentral Republik Indonesia
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July 19, 2019
No. 15/ 18 /PSHM/Humas

In the Board of Governors' Meeting convened on May 14th, 2013, Bank Indonesia decided to hold the BI rate steady at 5.75%. The current policy rate is considered consistent with inflation target range of 4.5%±1% in 2013 and 2014. Although Consumer Price Index (CPI) in April 2013 recorded a deflation, Bank Indonesia will closely monitor the risk of inflationary pressures emanating from rising inflation expectations in view of the possibility of a Government policy decision related to oil-based fuels. In that regard, Bank Indonesia will continue strengthening monetary operations by absorbing more excess liquidity using its longer-term instruments. This policy is also intended to support exchange rate stabilization towards the rate consistent with its fundamental. This policy will be supported by further measures to deepen financial markets, particularly the foreign exchange market, such as by publishing a reference to rupiah exchange rate in the domestic spot market in the near future. Going Forward, Bank Indonesia will be vigilant on a number of risks that may put pressures on both inflation as well as exchange rate, and will not hesitate to act to adjust monetary policy if needed. In addition, policy coordination with the Government will be strengthened with focus on efforts to minimize inflationary pressure and to manage current account deficit.

The Indonesian economy in the Q1-2013 grew 6.02%, slower than the previous quarter of 6.11%. The Gross Domestic Product (GDP) growth was lower than the earlier prediction of Bank Indonesia at 6.2%. The slow growth of the economy stems from declining domestic demand, amid the export recovery still limited. Household consumption growth slowed in line with weakened purchasing power due to higher volatile foods inflation and rising inflation expectations related to uncertainty in fuel subsidy policy. In addition, government consumption slowed at the beginning of the year in line with low budget absorption, especially in goods expenditure. On the other side, investment, particularly non-construction, has a tendency to slow down affected by moderate demand domestically and internationally. In line with slowing down in investment and consumption, imports contracted. With that condition, economic growth in the Q2-2013 is expected to be lower than previously forecasted and will be at a level that is not much different from Q1-2013. For the whole year of 2013, Indonesia’s economic growth will reach toward the lower band of 6.2%-6.6%.

From the external side, the external balance has improved as expected. Current account deficit in the Q1-2013 went down to 2.4% of GDP from 3.5% of GDP in the previous quarter. Improvement in the current account deficit was associated with better trade balance as imports fell sharply, especially on consumer goods, while some non oil and gas exports commodities continue to post positive growth. Meanwhile, the capital and financial (TMF) in the Q1-2013 recorded a deficit as capital inflows diminished due to worsening global economy and mounting domestic inflation. At the beginning of the Q2-2013, capital inflows has begun to increase again, partly linked to global bond issuance by the government. International reserves at the end of April 2013 increased from the previous month to USD107.3 billion, equivalent to 5.8 months of imports and government’s external debt services, above the adequacy level of international standards.

Rupiah depreciation pressure has moderated in April 2013 with less intensity in line with an increase on capital inflows. On point to point basis, Rupiah depreciated by 0.05% (mtm) and reached Rp9.723 per US dollar with its volatility remained in check. Higher demand for foreign exchange was offset by the supply from non-resident, supported by positive perception in Indonesia’s economy after global bond issuance by the government. S&P’s outlook cut, from positive to stable, has only affect the Rupiah exchange rates temporarily. Going forward, Bank Indonesia will continue its policy toward safeguarding the stability of the rupiah in accordance with its economic fundamentals as well as will continue its efforts to deepen the foreign exchange market.

CPI in April 2013 recorded a deflation as supply improved and Government put more efforts to readjust its policy regarding horticultural imports. CPI in April 2013 was recorded -0.10% (mtm) or 5.57% (yoy) driven by volatile food deflation along with harvest season in some regions and improved import policy, especially garlic. On the other hand, core inflation is subdued (4.12%, yoy), in line with declining global commodity prices and stable demand, although inflation expectations begin to rise driven by uncertainty in fuel subsidy policy. Going forward, the coordination measures with the Government will be strengthened, particularly in increasing domestic production and improving efforts related to horticultural imports.

The financial system stability and banking intermediation function were properly maintained. A solid banking industry performance is reflected in the high capital adequacy ratio (CAR) at 18,9%, which is well above the minimum capital requirement of 8% and low ratio of non-performing loans (NPL) gross at 1,97% in March 2013. Meanwhile, credit growth slowed down in March 2013 reached 22.2% (yoy) in line with decelerating domesctic economy. Working capital and investment credits grew quite high at 23.7% (yoy) and 23.2%(yoy), while consumer credit grew 18,9% (yoy). Bank Indonesia envisages credit growth rate is consistent with economic growth. Going forward, Bank Indonesia believes that the financial stability will be maintained with banking intermediary function at moderate level in line with decelerating Indonesia’s economic performance.

A complete report of the May 2013 Board of Governors’ Meeting, presenting macroeconomic developments and monetary policy will be published in the Monetary Policy Review (MPR). This publication is accessible through Bank Indonesia’s website.

Jakarta, 14th May 2013
Office of the Governor

Difi A. Johansyah
Executive Director

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