BI 7-Day Reverse Repo Rate Held at 5,00%, Strengthening Growth Momentum, Maintaining Stability - Bank Sentral Republik Indonesia
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September 29, 2020

No. 22/ 4 /DKom

The BI Board of Governors agreed on 22nd and 23rd January 2020 to hold the BI 7-Day Reverse Repo Rate at 5.00%, while also maintaining the Deposit Facility (DF) and Lending Facility (LF) rates at 4.25% and 5.75%. Monetary policy remains accommodative and is consistent with controlled inflation in the target corridor, maintained external stability as well as efforts to sustain domestic economic growth momentum. Bank Indonesia will continue to orient monetary operations towards maintaining adequate liquidity and supporting the transmission of an accommodative policy mix. Meanwhile, Bank Indonesia will maintain accommodative macroprudential policy to stimulate economic financing in line with the suboptimal financial cycle, while also paying due consideration to prudential principles. Payment system policy and financial market deepening will be strengthened further in order to support economic growth. Going forward, Bank Indonesia will monitor domestic and global economic development in using its room to implement an accommodative policy mix in order to maintain controlled inflation and external stability as well as to support economic growth momentum. In addition, Bank Indonesia will continue to strengthen coordination with the Government and other relevant authorities in order to maintain economic stability and catalyse domestic demand, while boosting exports and tourism and attracting foreign capital flows, including Foreign Direct Investment (FDI).

There are early indications of a potential global economic recovery in 2020, supported by less global financial market uncertainty. Global economic gains are predicted amidst stronger-than-expected growth in several developing countries. The latest global indicators for manufacturing, new export orders, production and confidence were observed to improve in the final two months of 2019, induced by policy stimuli in various countries coupled with optimism surrounding the Phase 1 Trade Deal agreed between the United States and China. Such developments have boosted economic growth in advanced economies, such as the United States, Japan and Europe, in line with the various policy measures implemented in each jurisdiction. The economic growth outlook for developing countries is also promising, including China, India and Brazil, despite several domestic issues the respective authorities are currently taking measures to overcome. In general, optimism stoked by global economic improvements has reduced global financial market uncertainty and triggered a surge of foreign capital inflows to developing economies. The global recovery outlook has also strengthened domestic economic growth momentum and prompted foreign capital inflows, yet the geopolitical risks continue to demand attention.

National economic growth momentum is resilient as a corollary of improving export performance and solid household consumption. Increasing demand from Indonesia’s trading partners and higher export commodity prices have been a boon to exports, with shipments of coal, motor vehicles, iron and steel as well as metal ore and scrap metal recording positive growth in the fourth quarter of 2019. Spatially, nickel ore exports from Sulawesi and copper exports from West Nusa Tenggara have also increased. Consumer confidence is rising, which has maintained household consumption along with seasonal factors towards year-end. Meanwhile, investment continues to improve, boosted by regional investment in downstream nickel processing located in Sulawesi. A bump in the Manufacturing Purchasing Managers’ Index and other recent indicators of export sales and domestic sales are indicative of stronger investment. Bank Indonesia expect investment to continue increasing due to infrastructure development and surging business confidence as a result of expanding exports and improvements in the ease of doing business in line with current government policy, including implementation of the Omnibus Law on Job Creation. Consequently, economic growth in 2019 was recorded at 5.1%, which Bank Indonesia projects in the 5.1-5.5% range for 2020.

Indonesia’s balance of payments is expected to continue gaining strength in the fourth quarter of 2019, thereby bolstering external resilience. The main contributors to the BOP gain were an influx of foreign capital inflows and a manageable current account deficit. The net foreign inflow of portfolio investment to domestic financial markets in the fourth quarter of 2019 stood at USD6.36 billion, up from USD4.88 billion in the third quarter of 2019. Meanwhile, Bank Indonesia expects a manageable current account deficit in line with the sharp decrease in the trade deficit to USD0.03 billion from USD1.39 billion the month earlier. Consequently, the current account deficit in 2019 is projected at 2.7% of GDP and in the 2.5-3.0% of GDP range in 2020. Furthermore, the position of reserve assets at the end of December 2019 increased to USD129.2 billion, equivalent to 7.6 months of imports or 7.3 months of imports and servicing government external debt, which is well above the international adequacy standard of three months. Going forward, Bank Indonesia will continue to strengthen policy synergy with the Government and other relevant authorities to reinforce external stability, while attracting more FDI.

The rupiah continues to appreciate, supported by improving BOP performance. As of 22nd January 2020, the rupiah strengthened by 1.74% (ptp) on the December 2019 level, thus maintaining the appreciatory trend recorded in 2019 at 3.58% (ptp) or by an average of 0.76%. The strong rupiah is supported by the supply of foreign exchange from exporters and maintained foreign capital inflows due to the promising national economic outlook, highly attractive domestic financial markets and less uncertainty in the global financial markets. Furthermore, the structure of the foreign exchange market is improving, characterised by an uptick of transaction volume and more efficient quotations as well as further development of the DNDF market, which will increase foreign exchange market efficiency. Bank Indonesia is confident that rupiah exchange rate appreciation is in line with the currency’s fundamental value and improving market mechanisms, coupled with growing market confidence in the policies instituted by Bank Indonesia and the Government. Overall, rupiah appreciation is having a positive impact on economic growth momentum and macroeconomic stability. Looking ahead, Bank Indonesia predicts rupiah stability in line with the currency’s fundamental value and maintained market mechanisms. Bank Indonesia will continue to accelerate financial market deepening, targeting the money market and foreign exchange market in particular, in order to support exchange rate policy effectiveness and strengthen domestic financing.

Low and stable inflation was maintained in 2019, thus supporting economic stability. CPI inflation in 2019 was recorded at 2.72% (yoy), down from 3.13% in 2018 and remaining in the target corridor of 3.5%±1%. As a result, inflation has remained consistently with in the target corridor for the past five consecutive years. Lower and controlled inflation within the target range has been influenced by various structural improvements, such as the growing contribution of rational inflation expectations anchored to the target corridor, coupled with an impact of exchange rates and import prices as well as a milder knock-on effect of higher VF and AP inflation to core inflation. Less intense on volatile food inflationary pressures also stem from policy synergy between Bank Indonesia and the Government through the National and Regional Inflation Task Forces (TPIP and TPID), which has effectively dampened the impact of food price shocks during episodes of heightened demand and/or lower supply. Meanwhile, inflationary pressures on administered prices have remained low. Bank Indonesia remains fully committed to maintaining price stability, with CPI inflation in 2020 predicted in the target corridor, namely 3.0%±1%.

Effective transmission of the looser monetary policy stance has been strengthened by adequate liquidity in the banking industry. Liquidity in the money market and banking industry remains adequate, as reflected by the high average daily transaction volume in the interbank money market during December 2019 at Rp17.60 trillion, together with a ratio of liquid assets to deposits of 21.10% recorded in November 2019. Monetary policy transmission through the interest rate channel to the money market remains effective, as reflected by a 111bps drop in the interbank rate on 1-week tenors to 5.06% and a 117bps decline in the 1-week JIBOR to 5,07% since the end of June 2019. In addition, transmission to the banking industry continues yet remains suboptimal. The weighted average deposit rate in December 2019 was recorded at 6.31%, falling 52 bps since the end of June 2019 before Bank Indonesia began to lower the BI 7-Day (Reverse) Repo Rate in July 2019. The banking industry has also confirmed that interest rates on working capital loans have fallen 33bps since the end of June 2019 or 47bps since January 2019 to 10.09% in December 2019. Meanwhile, growth of narrow money (M1) and broad money (M2) in November 2019 mirrored the economic growth trend at 10.52% (yoy) and 7.11% (yoy) respectively. Bank Indonesia will continue to ensure adequate liquidity and boost money market efficiency, while strengthening transmission of the accommodative policy mix.

Financial system stability has been maintained despite the bank intermediation function still requiring attention. Financial system stability was reflected by a high Capital Adequacy Ratio (CAR) of 23.66% recorded in November 2019 along with a low level of non-performing loans (NPL) at 2.77% (gross) or 1.24% (nett). Credit growth remains sluggish despite accelerating from 6.53% (yoy) in October 2019 to 7.05% (yoy) in November 2019, spurred by seasonal demand for loans towards year-end. On the other hand, deposit growth increased moderately from 6.29% (yoy) in October 2019 to 6.72% (yoy) in November 2019. Based on the latest dynamics, Bank Indonesia predicts growth of outstanding loans disbursed by the banking industry in 2019 at 6.08%, with deposit growth of 6.54%. Despite languishing credit growth, other sources of economic financing, such as new corporate bond issuances and FinTech, achieved solid growth at 7.6% and 141.5% respectively. In 2020, various financing sources are expected to gain momentum in line with the favourable economic growth outlook, including credit growth and deposit growth in the range of 10-12% and 8-10% respectively. Bank Indonesia will maintain an accommodative macroprudential policy stance and strengthen coordination with other relevant authorities in order to maintain financial system stability and stimulate the bank intermediation function.

Payment system availability, both cash and non-cash, remains uninterrupted. The position of currency in circulation grew 5.95% (yoy) in December 2019, while non-cash payment transactions using ATM/debit cards, credit cards and electronic money expanded 2.45% (yoy) on the previous position, dominated by ATM/debit cards with a 92.92% share. Impressive growth of e-money transactions was maintained in December 2019 at 188.31% (yoy) in line with greater public uptake of digital currency. Bank Indonesia will continue to promote the digital economy and finance, encompassing economic inclusion, through implementation of the National Payment System Blueprint 2025. QRIS acceptance continues to grow from humble beginnings in traditional markets and university to cross-border transactions. Development of BI-FAST, as a fast, secure and affordable online retail payment system infrastructure solution, has also begun. Furthermore, Bank Indonesia is coordinating with the Government to accelerate non-cash transaction uptake by expediting the electronification of payment transactions for non-cash social aid program (bansos) disbursements, transportation sector payments and government transactions, local government in particular.

Jakarta, 23rd January 2020


Onny Widjanarko
Executive Director



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