BI 7-Day Reverse Repo Rate Lowered 25 bps to 4.00%: Synergy Driving the National Economic Recovery - Bank Sentral Republik Indonesia
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August 14, 2020


The BI Board of Governors agreed on 15th and 16th July 2020 to lower the BI 7-day Reverse Repo Rate by 25 bps to 4.00%, Deposit Facility (DF) rate by 25 bps to 3.25% and Lending Facility (LF) rate by 25 bps to 4.75%. The decision is consistent with low projected inflation and maintained external stability, as well as a follow-up actions to drive the national economic recovery during the COVID-19 pandemic.

  1. Rupiah exchange rate stabilisation policy will be maintained in line with the currency's fundamental value and market mechanisms against a backdrop of persistent global financial market uncertainty.
  2. To catalyse national economic recovery during the COVID-19 pandemic, Bank Indonesia is focusing on strengthening a synergised expansive monetary policy response with accelerated fiscal stimuli from the Government. To that end, Bank Indonesia is firmly committed to funding the State Revenue and Expenditure Budget (APBN) in 2020 using measured SBN purchases in the primary market through market mechanisms and private placements to finance the budgets for healthcare, social protections, sectoral government ministries and agencies as well as local government, underpinning the national economic recovery program. Furthermore, Bank Indonesia is also sharing the burden with the Government to accelerate the MSME and corporate sector recoveries.
  3.  Bank Indonesia is strengthening policy coordination with the Government and Financial System Stability Committee to maintain macroeconomic and financial system stability, including by providing funding for the Deposit Insurance Corporation (LPS) through a repurchase agreement mechanism and/or purchasing SBN held by LPS in accordance with Government Regulation No. 33 of 2020.
  4. Bank Indonesia is also expediting payment system digitalisation in order to hasten implementation of the digital economy and finance as part of the economic recovery efforts through collaboration between the banking and FinTech industries to expand MSME and public access to economic and financial services.


The global economic contraction is persisting, accompanied by a slower global economic recovery than previously expected. A resurgence of COVID-19 cases in several countries, including the United States, Brazil and India, has contributed to current global dynamics. In addition, the reintroduction of health protocols has increased pressure on the mobility of economic players and prevented economic activity from returning to normal. Such developments have reduced policy effectiveness in various advanced and developing countries, including China, in terms of stimulating an economic recovery. Several indicators point to compressed demand, low expectations and restrained export demand as of June 2020. Consistent with weak global demand, world trade volume and international commodity prices are lower than previously predicted, with milder global inflationary pressures, therefore. A sluggish global economic recovery and furtherance of US-China geopolitical tensions have stoked global financial market uncertainty, ultimately impairing capital flows to developing economies, while amplifying currency pressures in developing economies, including Indonesia.

National economic growth is expected to contract in the second quarter of 2020, with the lowest level recorded in May 2020. Such developments are accounted for by a domestic economic contraction in April-May 2020 due to the impact of large-scale social restrictions introduced to break the domestic chain of COVID-19 transmission, which have also stalled economic activity. The latest developments in June 2020 show early signs of economic recovery in line with the gradual easing of large-scale social restrictions, yet the economy has not returned to pre-pandemic levels of growth. Early indicators of domestic demand have regained some upward momentum, including retail sales, the Purchasing Managers Index, consumer expectations and other domestic indicators. Exports of several commodities also improved in June 2020, including iron and steel, boosted by demand from China for infrastructure projects. Moving forward, the pace of domestic economic recovery is expected to accelerate with the absorption of fiscal stimuli, successful loan and corporate restructuring, the digitalisation of economic activities, including MSME activity, as well as the effective implementation of health protocols in the new normal era. Through its policy mix, Bank Indonesia continuously strengthens synergy with the Government and other relevant authorities to ensure the policies taken effectively drive the economic recovery.

Indonesia's external sector remains resilient. A narrow current account deficit is expected in the second quarter of 2020 as declining imports due to weak domestic demand improve the trade balance. Data as of June 2020 indicates a trade surplus of USD2.9 billion in the second quarter of 2020, increasing from USD2.6 billion in the previous period. Meanwhile, foreign capital flows in the form of portfolio investment recorded a net inflow of USD10.2 billion in the second quarter of 2020. Bank Indonesia expects foreign capital inflows to persist despite receding at the beginning of July 2020 due to heightened global financial market uncertainty. The prospect for foreign capital inflows will be influenced by global liquidity in line with looser monetary policy in advanced economies, coupled with highly attractive domestic financial assets for investment and maintained investor confidence in the domestic economic outlook. At the end of June 2020, the position of reserve assets stood at USD131.7 billion, equivalent to 8.4 months of imports or 8.1 months of imports and servicing government external debt, which is well above the international adequacy standard of three months.

Rupiah exchange rates are under control and consistent with the currency's fundamental value. Point-to-point, the rupiah appreciated 14.42% in the second quarter of 2020 in line with large foreign capital inflows recorded in May and June 2020 despite depreciating by an average of 4.53% due to softness in April 2020. At the beginning of July 2020, the rupiah and other regional currencies were hit by global uncertainty, stoked by the recent escalation of geopolitical tensions between the United States and China. As of 15th July 2020, the rupiah had depreciated 2.28% point to point and compared to the average level in June 2020. Year-to-date, the rupiah has lost 4.83% of its value compared with the level recorded at the end of 2019. Moving forward, Bank Indonesia perceives potential rupiah appreciation as the currency is still fundamentally undervalued, supported by low and controlled inflation, a narrow current account deficit, competitive yields on domestic financial assets for investment and a lower risk premium. Supporting exchange rate policy effectiveness, Bank Indonesia continues to maintain adequate liquidity in the money market and foreign exchange market, while safeguarding market mechanisms.

Inflation remains low, thereby supporting economic stability. Consumer Price Index (CPI) inflation stood at 0.18% (mtm) or 1.96% (yoy) in June 2020, down from 2.19% (yoy) the month earlier. Consequently, low CPI inflation in June 2020 was recorded at 1.09% (ytd). By component, core inflation has decreased on weak domestic demand and policy consistency by Bank Indonesia to anchor inflation expectations to the target corridor. Annually, volatile food inflation continues to decline due to adequate supply and uninterrupted distribution activities for basic necessities. Meanwhile, inflationary pressures on administered prices have begun to accumulate in line with higher transportation fares after the government relaxed operational restrictions on public transport at the beginning of June 2020. Moving forward, Bank Indonesia will continue to consistently maintain price stability and strengthen policy coordination with the central and local governments in order to maintain low inflation within the target corridor of 3.0%±1% in 2020 and 2021.

Supported by an optimal monetary operations strategy, Bank Indonesia has maintained adequate money market liquidity and interest rates. As of 14th July 2020, Bank Indonesia had injected additional liquidity through quantitative easing into the banking industry totalling Rp633.24 trillion, including reserve requirements of around Rp155 trillion and monetary expansion amounting to Rp462.4 trillion. Loose liquidity conditions are reflected in the low interbank money market rate at around 4% in June 2020, coupled with a high ratio of liquid assets to deposits at 24.33% in May 2020. Adequate liquidity and a lower policy rate (BI7DRR) have contributed to lower interest rates in the banking industry. Consistent with lower interbank money market rates, the weighted average funding rate and interest rate on working capital loans decreased respectively from 5.85% and 9.60% in May 2020 to 5.74% and 9.48% in June 2020. Growth of the M1 and M2 Monetary Aggregates accelerated in May 2020 to 9.7% (yoy) and 10.4% (yoy) respectively. The monetary expansion adopted by Bank Indonesia, which has stayed in the banking industry, is now expected to more effectively stimulate national economic recovery by expediting budget realisation and the bank loan restructuring program.

Synergic monetary expansion by Bank Indonesia has been strengthened through the acceleration of fiscal stimuli by the Government to drive the national economic recovery. Synergy encompasses Bank Indonesia's contribution to funding the 2020 state budget using SBN purchases in the primary market through market mechanisms and private placements in accordance with the Joint Decrees of the Minister of Finance and Governor of Bank Indonesia issued on 16th April 2020 and 7th July 2020. Monetary and fiscal policy synergy represents a joint effort to accelerate national economic recovery program implementation, while maintaining macroeconomic stability. As of 14th July 2020, Bank Indonesia had purchased Rp36.69 trillion of SBN in the primary market through auction schemes, greenshoe options and private placements. With Bank Indonesia's participation in purchasing SBN in the primary market, the Government can focus on accelerating state budget realisation in order to immediately recover the national economy. Moving forward, Bank Indonesia will continue to ensure adequate liquidity and remains committed to funding the 2020 state budget in order to support the national economic recovery.

Financial system stability has been maintained, although the potential risks associated with COVID-19 transmission on financial system stability must still be monitored. The Capital Adequacy Ratio (CAR) remained high at 22.14% in May 2020, accompanied by low NPL ratios of 3.00% (gross) and 1.17% (nett). Nevertheless, the bank intermediation function remains suboptimal in line with weak domestic demand and cautious bank lending due to the ongoing COVID-19 pandemic. The banking industry reported credit growth in May 2020 at 3.09% (yoy), down from 5.73% in April 2020. The loan restructuring program in the Covid-19 era peaked in April 2020 and the government guarantee program for MSME loans to support the national economic recovery is expected to stimulate intermediation. Meanwhile, the banking industry reported higher deposit growth than loan growth at 8.89% (yoy). Bank Indonesia will continue to maintain an accommodative macroprudential policy stance in line with the current policy mix and national policy mix, including various efforts to mitigate risk in the financial sector caused by COVID-19 transmission.

Payment system availability, both cash and non-cash, remains uninterrupted. Limited growth of currency in circulation recorded at 2.34% (yoy) to a level of Rp744.9 trillion in the reporting period, impacted by declining economic activity in the second quarter of 2020. Consistent with such conditions, cashless transactions using ATM cards, debit cards, credit cards and electronic money decreased 24.46% (yoy) in May 2020. Nevertheless, e-money transactions and digital banking transaction volume maintained strong growth in May 2020 at 17.31% (yoy) and 30.33% (yoy) respectively. Similarly, the electronification of central government social aid program disbursements and local government financial transactions continues to progress rapidly in line with Bank Indonesia's payment system digitalisation program. Such positive developments are indicative of greater public acceptance of digital economic and financial transactions during the COVID-19 pandemic. Moving forward, Bank Indonesia will continue to accelerate implementation of the Payment System Blueprint for 2025 to support digital economy and finance activities in the new normal era, stimulate national economic recovery momentum as well as expedite economic and financial inclusion. Furthermore, Bank Indonesia will also continue to strengthen synergy with the Government and other relevant authorities to support cashless social aid program disbursements and economic recovery momentum.

Head of Communication Department
Onny Widjanarko
Executive Director 
Information on Bank Indonesia
Tel. 021-131, email:




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