BI 7-Day Reverse Repo Rate Held at 4.75% Maintaining Stability and Promoting National Economic Recovery Momentum - Bank Sentral Republik Indonesia
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October 20, 2019

No. 19/53/DKom

The BI Board of Governors agreed on 19th and 20th July 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 21st July 2017. The decision is consistent with Bank Indonesia’s efforts to maintain macroeconomic and financial system stability, while considering the dynamics of global and domestic economy. The process of domestic economic recovery continues albeit not as strong as previously projected, especially due to consumption slowdown despite an increase in investment. Pressures on inflation are expected to decrease below previous expectations, due to week demand and controllable food price. Bank Indonesia continues to monitor various risks, both global, especilly the Fed’s balance sheet normalization plan, and domestic, specifically the 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, while supporting further economic recovery. Furthermore, Bank Indonesia shall also continue to strengthen coordination with the Government to control inflation within the target corridor and support the current structural reforms towards sustainable economic growth.

The global economy is improving as projected, despite several risks that demand vigilance. On one hand, the US economic growth is expected to be lower after the limited impact of fiscal policy and investment was squeezed by a potentially lower oil price. On the other hand, China’s economy is expected to accelerate on the back of stronger consumption and rising exports. The economy in Europe is also predicted to gain momentum as consumption increases, while export performance and optimism in the economy have improved. Such global economic advances have stimulated an increase in world trade volume (WTV) and is expected to bring positive impact on Indonesia’s export. Meanwhile, high international commodity prices are expected to persist despite potential downside pressures on the oil price linked to oversupply outstripping limited demand. Moving forward, several global risks require close monitoring, especially coming from the US, including the planned FFR hike, the Fed’s plan to unwind its large balance sheet, and uncertainties in the fiscal policy.

Indonesia’s economic recovery process continue over the second quarter of 2017 albeit not as strong as previously projected. Consumption growth is potentially lower, as reflected by slower retail sales. Exports continued to grow, albeit below the previous projection due to slower growth of export volume for primary and manufacturing goods. In contrast, investment performance improves, especially in the nonbuilding sector related to natural resources, while building investment remains solid supported by government infrastructure projects but also by the private property sector. Going forward, economic growth is expected to increase, supported by stronger export performance and investment. With improvements in the second half of the year, Bank Indonesia predicts the 2017 national economic growth to stay within the 5.0-5.4% range. Several risks on the economic growth prospect still demand vigilance, especially related to slow domestic demand along with the ongoing consolidation in the corporate and banking sectors

Indonesia’s trade balance recorded a surplus in the second quarter of 2017. The trade surplus stood at USD3.5 billion, mainly supported by the large surplus in the non-oil and gas trade. Non-oil and gas export growth was recorded at 6.8% (yoy), specifically due to a hike in primary commodity rices, while non-oil and gas import growth was recorded at 4.9%, especially consumption goods import. Supported by the strong investor confidence, foreign capital inflow in Indonesia’s market on the second quarter of 2017 was recorded at USD4.3 billion, making the non-resident inflow through to the end of June 2017 to accumulate to USD9.6 billion. The position of official reserve assets at the end of the second quarted of 2017 was recorded at USD123.1 billion, down slightly from the USD121.8 billion registered at the end of the first quarter of 2017. The position of FX reserves was equivalent to 8.9 months of imports or 8.5 months of imports and servicing government external debt, which is well above the international standard of around three months.

The rupiah remained relatively stable and tracked an appreciatory trend. The rupiah strengthened by a monthly average of 0.17% to a level of Rp13,298/USD in the reporting period. The appreciation was bolstered by the ongoing FX sales by corporations and a considerably large influx of foreign capital into the domestic market, and also in line with the appreciation in the regional currencies. Exchange rate volatility mas maintained at a low level, along with increased efficiency in the FX market. This is in line with several FX market deepening efforts as reflected by the increasing daily FX transaction volume, including derivative transactions. Bank Indonesia shall continue to stabilise rupiah exchange rates in line with the currency’s fundamental value, while maintaining market mechanisms.

Low headline inflation was observed in June 2017, thus supporting attainment of the 2017 inflation target, namely 4±1%. The Consumer Price Index (CPI) was recorded at 0.69% (mtm) in June 2017, below the average rate during the Eid-ul-Fitr period for the past three years at 0.85% (mtm). Inflation was controlled by volatile foods and core inflation, which were lower than the historical average. Volatile foods inflation stood at 0.65% (mtm), below the historical average for the Eid-ul-Fitr period for past three years at 1.78% (mtm). This was the result of various government policies to stabilise food prices, combined with tight coordination with Bank Indonesia. Furthermore, core inflation in June 2017 was recorded at 0.26% (mtm), which was also below the historical average for the Eid-ul-Fitr period for past three years at 0.40% (mtm). Low core inflation stemmed from weak domestic demand, stable exchange rates and anchored inflation expectations. In contrast, administered prices (AP) recorded relatively high inflation of 2.10% (mtm) after the third phase of electricity tariff hikes was implemented. Looking forward, Bank Indonesia will continue to strenghten coordination with the central government and regional administrations, to keep inflation within it’s target corridor.

Maintained banking industry resilience and stable financial markets continued to underpin solid financial system stability. In May 2017, the Capital Adequacy Ratio (CAR) of the banking industry stood at 22.7% and the liquidity ratio at 22.3%. Meanwhile, non-performing loans (NPL) were recorded at 3.1% (gross) or 1.4% (net). Deposit growth accelerated from 9.9% (yoy) to 11.2% (yoy) over the same period. Credit growth slowed in May 2017, from 9.5% (yoy) the month earlier to 8.7% (yoy). Going ahead, deposit and credit growth are expected to increase, to reach the range of 9-11% and 10-12%. The potential growth, however, are still shadowed by a number of risks, namely domestic demand recovery prospects and developments in the banking consolidation.

Jakarta, 20 July 2017
Communication Department

Arbonas Hutabarat
Director

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