BI 7-Day Reverse Repo Rate Held at 4.75% Maintaining Stability, Promoting Economic Recovery - Bank Sentral Republik Indonesia
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May 23, 2019

No. 19/ 46 /DKom

The BI Board of Governors agreed on 14th and 15th June 2017 to hold the BI 7-day (Reverse) Repo Rate (BI-7 day RR Rate) at 4.75%, while maintaining the Deposit Facility (DF) and Lending Facility (LF) rates at 4.00% and 5.50% respectively, effective 16th June 2017. The decision is consistent with Bank Indonesia’s efforts to maintain macroeconomic and financial system stability, while supporting a continuous domestic economic recovery. Bank Indonesia continues to monitor various global and domestic risks. Globally, the FFR hike and the Fed’s plan to unwind its large balance sheet, results of the UK election, and the potential decrease in commodity prices, especially oil, are the salient risks that demand vigilance. At home, however, the risks include the impact of adjusting administered prices (AP) on inflation, coupled with ongoing consolidation in the corporate and banking sectors. Therefore, Bank Indonesia shall continue to optimise its monetary, macroprudential and payment system policy mix to maintain macroeconomic and financial system stability. Furthermore, Bank Indonesia shall also continue to strengthen coordination with the Government to control inflation within the target corridor and support ongoing structural reforms towards sustainable economic growth.

The global economy is improving as projected, despite several risks that must be monitored. The global economic outlook is improving in line with favourable economic developments in the United States, China, Europe and Japan. Stronger consumption, investment and improving labour indicators have boosted US economic momentum, while in China the economy is expanding on the back of government and private sector investment. On the other hand, the uptick in growth in Europe and Japan was driven by exports and domestic demand. Congruent with faster global economic growth, world trade volume was also observed to accelerate. Meanwhile, high international commodity prices are expected to persist but with potential downside risks linked to abundant supply that is outstripping the limited demand. Bank Indonesia believes that the FFR hike on 14th June 2017 has been anticipated, enabling Indonesia’s financial market to remain conducive, supported by positive perception of macroeconomic management and Indonesia’s fundamental conditions. Moving forward, the global risks require close monitoring, including further FFR hikes and the Fed’s plan to shed its large balance sheet as well as geopolitical tensions in various regions of the world.

Indonesia’s economic growth improved in the second quarter of 2017, supported by export growth, stronger investment, and a strong household consumption. Export growth remains well, in line with continuous recovery in the global economy as well as a hike in several commodity prices. Investment performance increased on the back of building investment, due to government infrastructure projects, private property sector, and non-building investment gains on activities in commodity and construction-based sectors. Meanwhile, tenacious household consumption is expected to remain, bolstered by Eid-ul-Fitr allowance disbursements. Bank Indonesia predicts 2017 domestic economic growth in the 5.0-5.4% range, supported by accelerating exports and investment performance as well as resilient household consumption.

Indonesia’s balance of payments (BOP) is set to record another surplus in Q2/2017, supported by a capital and financial account surplus. Furthermore, the current account deficit is expected to remain under control at a healthy level. The significant capital and financial account surplus has been supported by a deluge of foreign capital flows in the form of portfolio investment and direct investment in line with investor confidence in the promising domestic economic outlook. Investor’s positive perception is supported by Indonesia’s sovereign credit rating that received investment grade from three global rating agencies. Non-resident capital inflows to Indonesia’s financial markets at the end of May 2017 had reached USD9.0 billion (ytd). Consequently, the position of reserve assets at the end of May 2017 was recorded at USD124.95 billion, up from USD123.25 billion the month earlier. This is equivalent to 8.9 months of imports or 8.6 months of imports and servicing government external debt, which is well above the international standard of three months.

The rupiah remained relatively stable, tracking a moderate appreciatory trend in line with the maintained influx of foreign capital in May 2017. Point-to-point, the rupiah strengthened 0.05% (ptp) to close at a level of Rp13,323/USD. Rupiah stability was also evidenced by rupiah volatility, which remained low. The rupiah stability is supported by large foreign capital inflows and a deeper financial market in Indonesia. Looking forward, foreign capital inflows, both in FDI and portfolio investment, are expected to continue along with government structural reform and investor confidence in the national economic outlook. Nevertheless, Bank Indonesia shall continue to stabilise rupiah exchange rates in line with the currency’s fundamental value, while maintaining market mechanisms.

Inflation was controlled within the 2017 target corridor, namely 4±1%, despite inflationary pressures accumulating in May 2017. The Consumer Price Index (CPI) recorded inflation of 0.39% (mtm) or 4.33% (yoy) in May 2017, accelerating from 0.09% (mtm) the month earlier or 4.17% (yoy). Volatile foods (VF) and administered prices (AP) were cited as the main contributors to CPI inflation. Growing demand for several commodities during the approach to Ramadan in the fourth week of May heightened inflationary pressures on volatile foods, while persistently high AP inflation was recorded at 0.69% (mtm), albeit down from 1.27% (mtm) the month earlier. On the other hand, low core inflation was recorded at 0.16% (mtm), up slightly from 0.13% (mtm). Moving forward, Bank Indonesia will control inflation within the target corridor for 2017, namely 4±1%. To that end, policy coordination to control inflation between the central government, regional administrations and Bank Indonesia must be strengthened to handle soaring volatile food prices during the holy fasting month and Eid-ul-Fitr.

Maintained banking industry resilience and stable financial markets continued to support a solid financial system. In April 2017, the Capital Adequacy Ratio (CAR) of the banking industry stood at 22.6% and the liquidity ratio at 21.6%, while non-performing loans (NPL) were recorded at 3.1% (gross) or 1.4% (net). The transmission of monetary and macroprudential policy easing continued but was squeezed by bank prudence in terms of managing the credit risks. Credit growth in April 2017 stood at 9.5% (yoy), up from 9.2% (yoy) the month earlier, driven by infrastructure loans, consumer loans and social services. In contrast, deposit growth moderated slightly from 10.0% (yoy) last month to 9.9% (yoy). Congruent with the expected economic gains and ongoing impact of previous monetary and macroprudential policy easing, credit and deposit growth are expected to accelerate in 2017 to 10-12% and 9-11% respectively.

Jakarta, 15 June 2017
Communication Department
 
Tirta Segara
Executive Director

 

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