BI Rate Held at 7.50% Macroprudential Policy Loosened - Bank Sentral Republik Indonesia
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August 21, 2019

No. 17/38/DKom

The BI Board of Governors decided on 19th May 2015 to hold the BI Rate at 7.50%, while setting the Deposit Facility and Lending Facility rates at 5.50% and 8.00% respectively. The decision is in line with the tight bias monetary policy to keep inflation in its target of 4±1% in 2015 and 2016 as well as to manage the current account deficit at around 2.5-3% of GDP in the medium term. To keep the economic growth momentum, Bank Indonesia has loosened macroprudential policy by revising the LDR-RR regulation, LTV policy for mortgage loans as well as down payments on automotive loans. Furthermore, Bank Indonesia will also continue to strengthen coordination with the Government not only in terms of controlling inflation and managing the current account deficit, but also by accelerating fiscal stimulus to boost economic growth. To that end, Bank Indonesia supports government-led structural reforms to expedite infrastructure projects as well as continue various structural policies, therefore fostering economic agents’ optimism in the improving domestic economic outlook.

The global economic recovery continue to be imbalanced, with a high risk in the global financial market. The economic growth is expected to be slower than previously projected, in line with weaker growth in China and the United States. The revised US outlook stemmed from less production activity as external demand waned in line with broad dollar appreciation. This has led to a continued uncertainty in the Fed Fund Rate’s timing and amount of raise, as well as pressures of capital reversals from the emerging markets. China’s economy also slowed, as reflected by persistently sluggish property and manufacturing sectors despite a looser policy stance taken to prevent further economic decline. In contrast, the economy of Europe improved on looser monetary and financial conditions, coupled with the lower oil price. A torpid global economy perpetuated the decline in international commodity prices despite a rebound in the oil price.

On the domestic front, growth slowed in Q1/2015 but is predicted to improve in subsequent periods. Growth moderated to 4.7% (yoy) in Q1/2015 from 5.0% (yoy) on weak domestic demand, particularly government consumption and construction investment. Unrealised spending at several government ministries and new agencies along with limited capital spending related to the implementation of government infrastructure projects undermined government consumption and construction investment. Regionally, the domestic economic downturn affected all regions of the archipelago, including the manufacturing centres of Java and Jakarta as well as areas producing commodities from natural resources such as Sumatera and Kalimantan. Bank Indonesia predicts economic growth to rebound, especially in the second semester of 2015, as consumption and investment increase in line with government fiscal spending and an increase in credit distributions by the banking industry. Moving forward, an acceleration in government spending and the implementation of infrastructure projects realisation is the key catalyst for growth in 2015.

The Indonesia Balance of Payments (BoP) recorded a surplus in Q1/2015, primarily buoyed by a declining current account deficit. The current account deficit was US$3.8 billion (1.8% of GDP) in the first quarter, shrinking from US$5.7 billion (2.6% of GDP) in the preceding period and compared to US$4.1 billion (1.9% of GDP) during the same period of 2014. A rise in the current account performance was manly supported by oil and gas trade, in line with fewer imports of oil due to the lower international price and less consumption of oil, as a positive effect of energy reforms. Meanwhile, the trade balance of Indonesia strengthened in April 2015 with a surplus of US$0.45 billion, supported by a larger non-oil and gas trade surplus. On the other hand, the capital and financial account surplus was maintained in the first quarter of 2015 amidst uncertainty in the global financial market. The surplus was mainly supported by foreign capital inflows in the form of portfolio and direct investment. Consequently, foreign exchange reserves totalled US$110.9 billion in April 2015, equivalent to 6.9 months of imports or 6.7 months of imports and servicing public external debt, which is well above the international adequacy standard of three months. Looking ahead, Bank Indonesia will remain vigilant of risks inherent with the current account deficit as imports surge during the approach to Eid-ul-Fitr, coupled with seasonal dividend payments and external debt repayments.

The rupiah depreciated as the US dollar gained on nearly all currencies. The rupiah depreciated an average of 4.4% (qtq) to a level of Rp12,807 per USD in Q1/2015. Broad US dollar appreciation was backed by US economic momentum and quantitative easing by the European Central Bank (ECB). Nonetheless, the rupiah rebounded in April 2015 on a USD correction along with a sound domestic risk profile. Consequently, the rupiah strengthened by an average of 0.95% (mtm) to Rp12,944 per USD. Looking ahead, Bank Indonesia will continue to maintain rupiah stability in line with its fundamental value, thus supporting macroeconomic stability and domestic economic rebalancing policy.

Inflation was controlled in April 2015, thereby supporting the inflation target of 4±1% in 2015. CPI inflation was recorded at 0.36% (mtm) or 6.79% (yoy) in April 2015, increasing from 0.17% (mtm) and 6.38% (yoy) in the previous period. Escalating inflationary pressures originated from administered prices, while core inflation and volatile foods were managed well. Rising administered prices stemmed from higher petrol and diesel prices at the end of March, intra-city transport fares and household fuels. Conversely, volatile foods continued to experience deflation as harvests endured. On the other hand, core inflation was controlled at 0.24% (mtm) or 5.04% (yoy) in line with moderate domestic demand and anchored inflation expectations. Furthermore, Bank Indonesia will continue to monitor various inflation risk factors, such as the global oil price, administered prices as well as seasonal factors in the run up to the holy fasting month and Eid-ul-Fitr.

Financial system stability remained solid, supported by a resilient banking system and stable financial market performance. The banking sector remained resilient, with credit, market and liquidity risks well mitigated and the support of a sound capital base. The Capital Adequacy Ratio (CAR) was 20.7% in March 2015, well in excess of the 8% minimum. In addition, non-performing loans (NPL) remained low and stable at 2.0% (gross). As reflected by a 16,0% (yoy) increase in deposit growth in March 2015, higher than that of the previous month (15,2%, yoy), liquidity is sufficient. On the other hand, credit growth on March 2015 decreased to 11,3% (yoy), lower than the previous month’s growth (12,2, yoy). Moving ahead, Bank Indonesia is confident that credit growth will increase, reaching the range of 15%-17%, supported by a sufficient liquidity in the banking industry, an improvement in economic activities along with government expansion, and a loosened macroprudential policy trough. Bank Indonesia will soon revise the LDR-RR policy and, along with the Indonesia Financial Services Authority revise the mortgage loan LTV, and down payment on automotive loans.

Jakarta, 19 May 2015
Communication Department

Tirta Segara
Executive Director

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