BI 7-Day Reverse Repo Rate Held at 6,00%: Strengthening External Stability, Promoting Economic Growth Momentum - Bank Sentral Republik Indonesia
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November 30, 2020

No. 21/37/DKom

The BI Board of Governors agreed on 15th and 16th May 2019 to hold the BI 7-Day Reverse Repo Rate at 6.00%, while also maintaining the Deposit Facility (DF) and Lending Facility (LF) rates at 5.25% and 6.75%, respectively. The decision is consistent with efforts to maintain the external stability of Indonesia’s national economy amidst the re-emergence of global financial market uncertainty. Furthermore, Bank Indonesia will remain vigilant of global financial market dynamics and external stability with due consideration to the space available for accommodative monetary policy in line with low inflation and the need to stimulate domestic economic growth. Bank Indonesia will also ensure adequate liquidity is available in the banking system, while instituting accommodative macroprudential policy by holding the countercyclical capital buffer (CCyB) at 0%, the Macroprudential Liquidity Buffer (MPLB) at 4% with flexible repos at 4% and the Macroprudential Intermediation Ratio (MIR) in the 84-94% range. In addition, payment system policy and financial market deepening will be strengthened to catalyse economic growth. Bank Indonesia will also strengthen coordination with the Government and other relevant institutions to preserve economic stability, stimulate domestic demand as well as boost exports, tourism and foreign capital inflows.

The global economic recovery is progressing slower than expected and financial market uncertainty is back on the rise.  Economic growth in the United States is expected to moderate on limited fiscal stimuli, retreating economic confidence, slower rising wages and persistent structural labour market issues. Economic gains in Europe are being held back by weak exports, ongoing financial sector issues and the structural challenge of an ageing population. China’s economy is also sluggish despite fiscal stimuli in the form of tax cuts and infrastructure development. Global economic moderation has undermined world trade volume and prompted lower international commodity prices, except the global oil price that has been edged up by geopolitical factors. Meanwhile, uncertainty in the global financial markets stems from the escalating trade war between the United States and China, which has again triggered a capital reversal from developing to advanced economies despite a looser global monetary policy response. Such inauspicious global economic developments present a challenge to maintaining external stability in terms of stimulating exports and attracting foreign capital.

Global economic moderation has fed through to lower economic growth in Indonesia than previously expected. Indonesia’s economy grew 5.07% (yoy) in the first quarter of 2019, down from 5.18% (yoy) in the previous period yet up compared with the 5.06% (yoy) recorded in the first quarter of 2018. Global economic moderation and sliding commodity prices have weighed down export growth in Indonesia, thus leading to slower household consumption and non-building investment. Moreover, the effect of election spending on consumption was not as significant as initially predicted. Spatially, weaker regional growth in Java, Kalimantan and Papua was the main drag on national economic performance despite economic gains recorded in all other regions. Moving forward, greater efforts to catalyse domestic demand in the form of investment, private investment in particular, are required to mitigate the adverse impact of subdued export performance as a corollary of global economic moderation. Bank Indonesia therefore projects national economic growth below the midpoint of the 5.0-5.4% range in 2019. In addition, Bank Indonesia will implement a policy mix in conjunction with the Government and other relevant authorities to maintain economic growth momentum.

Indonesia’s Balance of Payments (BOP) recorded a surplus, thereby reinforcing external stability. In the first quarter of 2019, the BOP surplus stood at USD2.4 billion in line with a larger capital and financial account surplus, totalling USD10.1 billion, than the current account deficit at USD7.0 billion (2.6% of GDP). In April 2019, however, the trade balance experienced a USD2.5 billion deficit on the back of global economic moderation in addition to seasonal factors. Meanwhile, foreign capital inflows were maintained in April 2019, primarily supported by portfolio investment inflows. Therefore, the position of reserve assets was recorded at USD124.3 billion at the end of April 2019, equivalent to 7.0 months of imports or 6.8 months of imports and servicing government external debt, which is well above the international standard of three months. Looking ahead, Bank Indonesia expects the foreign capital inflows to persist, thereby precipitating a BOP surplus in 2019. Bank Indonesia projects a narrower current account deficit in 2019 compared with conditions in 2018, namely in the 2.5-3.0% of GDP range, albeit not as low as previously expected. Policy synergy between Bank Indonesia, the Government and other relevant authorities will constantly be strengthened to enhance external resilience.

The Rupiah has succumbed to depreciatory pressures in May 2019 due to the impact of global uncertainty and the seasonal spike in demand for foreign exchange. After appreciating in April 2019, the Rupiah fell 1.45% (ptp) as of 15th May 2019 compared with the rate recorded at the end of April 2019 or by 1.36% on the April average. The weaker Rupiah in May 2019 stems from negative global sentiment surrounding the recent escalation of the trade war, which has amplified currency pressures in developing economies, including Indonesia. Additionally, a seasonal increase in demand for foreign exchange for non-resident dividend payments also hampered Rupiah exchange rate performance. Nevertheless, Bank Indonesia predicts Rupiah stability moving forward with market mechanisms maintained in line with the promising BOP outlook for 2019. Moreover, Bank Indonesia will continue to accelerate financial market deepening, targeting the money market and foreign exchange market in particular, in order to increase the effectiveness of exchange rate policy and strengthen domestic financing.

Inflation remained under control in April 2019, thereby underpinning overall economic stability. The Consumer Price Index (CPI) recorded low 0.44% (mtm) inflation in April 2019, or 2.83% (yoy), despite accelerating from 0.11% (mtm) or 2.48% (yoy) the month earlier. The main contributors to higher inflation in April 2019 were volatile foods (VF) and administered prices (AP), while core inflation remained stable. VF inflation was induced by garlic, chillies and eggs, while administered prices (AP) increased on airfares and cigarettes. Core inflation remained under control in line with policy consistency by Bank Indonesia to anchor inflation expectations, including efforts to maintain Rupiah exchange rates in line with the currency’s fundamental value. Bank Indonesia will continue to consistently maintain price stability and strengthen policy coordination with the Central and Local Government in order to control low and stable inflation, which is projected below the midpoint of the target corridor for 2019, namely 3.5%±1%. Furthermore, coordination with the Government and other relevant authorities will also focus on controlling inflationary pressures during the holy fasting month of Ramadan and Eid-ul-Fitr 1440.

Financial system stability has been maintained amidst a stable intermediation function and contained credit risk. The Capital Adequacy Ratio (CAR) of the banking industry remained high at 23.3% in March 2019, accompanied by a low level of Non-Performing Loans (NPL) at 2.5% (gross) or 1.2% (nett). In terms of the intermediation function, the banking industry reported growth of outstanding loans in the reporting period at 11.5% (yoy), down from 12.1% (yoy) in February 2019. In addition, deposit growth reported by the banking industry accelerated to 7.2% (yoy) in March 2019 from 6.6% (yoy) in February 2019. Meanwhile, the ratio of liquid assets to deposits stood at 21.1% in March 2019. The performance of public listed corporations remained sound in the reporting period, supported by sustained repayment capacity. Moving forward, Bank Indonesia perceives adequate space to expand credit growth without disrupting financial system stability considering the credit cycle remains suboptimal with potentially faster credit growth facilitated by accommodative macroprudential policy. Therefore, Bank Indonesia projects growth of loans disbursed by the banking industry in the 10-12% (yoy) range, supported by deposit growth forecasted in the 8-10% (yoy) range.

The payment systems, both cash and noncash, were uninterrupted during the first quarter of 2019. Cash payments posted positive growth in the reporting period with the position of currency in circulation growing 5.6% (yoy). Non-cash payments, namely ATM/debit cards, credit cards and e-money, expanded 14.4% (yoy), with e-money reaching 100.4% (yoy) due to greater integration in the digital ecosystem through e-commerce. Moreover, Bank Indonesia continues to expand its electronification program for the social aid program (bansos), transportation modes and local government transactions in order to enhance efficiency and boost economic growth. As of the first quarter of 2019, the realisation of noncash social aid disbursements through the Family Hope Program (PKH) reached 37.41% or Rp12.3 trillion, while realisation of the Noncash Food Assistance Program (BPNT) reached 20.43% or Rp3.3 trillion of the noncash bansos target of Rp49.12 trillion for 2019 (Family Hope Program target is IDR 32.77 trillion and Noncash Food Assistance Program target is IDR 16.35 trillion). During the approach to Eid-ul-Fitr, Bank Indonesia and the banking industry will ensure a reliable and secure payment system, while preparing the operation, distribution and availability of cash services as well as the availability of e-money stock and top-up services in the transportation sector. In addition, Bank Indonesia is preparing approximately 2,900 cash exchange points throughout the Indonesian archipelago, including border, outlying and remote areas, operating from 13th May until 1st June 2019.

Jakarta, 16th May 2019


Onny Widjanarko
Executive Director



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