BI 7-Day Reverse Repo Rate Held at 4.00%: Synergy Driving the National Economic Recovery - Bank Sentral Republik Indonesia
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October 26, 2020

No. 22/71/DKom
The BI Board of Governors agreed on 16th and 17th September 2020 to hold the BI 7-Day Reverse Repo Rate at 4.00%, while also maintaining the Deposit Facility (DF) and Lending Facility (LF) rates at 3.25% and 4.75%.The decision is consistent with the need to maintain rupiah exchange rate stability against a backdrop of projected low inflation. Bank Indonesia is focusing on the quantity channel by providing liquidity to stimulate economic recovery during the COVID-19 pandemic, including Bank Indonesia’s support for the Government in terms of accelerating state budget realisation in 2020. In addition, Bank Indonesia is implementing the following measures:

  1. Maintaining rupiah exchange rate stabilisation policy in line with the currency's fundamental value and market mechanisms;
  2. Strengthening the monetary operations strategy in order to enhance transmission of the current monetary policy stance;
  3. Extending the 50bps lower rupiah reserve requirements, as an incentive for banks disbursing loans to small and medium enterprises (SMEs) and for export-import activity as well as to non-SMEs operating in priority sectors as stipulated in the national economic recovery program, from 31st December 2020 previously until 30th June 2021;
  4. Accelerating development of money market instruments to support corporate and SME financing in line with the national economic recovery program; and
  5. Expanding QRIS acceptance in order to bolster the economic recovery and accelerate SME development by extending the 0% Merchant Discount Rate (MDR) for micro-businesses from 30th September 2020 previously until 31st December 2020.


Bank Indonesia will continue to implement the follow-up policy measures required to support the national economic recovery program by observing global economic and financial market dynamics as well as COVID-19 transmission and their impact on the economic outlook for Indonesia over time. Close policy coordination with the Government and Financial System Stability Committee will constantly be strengthened in order to maintain macroeconomic and financial system stability, while accelerating national economic recovery.

The global economy is gradually starting to rebound. Economic gains in China and the United States are driving global improvements, while economies in Europe, Japan and India continue to languish. Positive developments in China and the United States are consistent with a flattening of the COVID-19 curve, which has increased global public mobility towards equilibrium in the new normal era, coupled with the impact of extraordinary monetary and fiscal stimuli. Several early indicators in August 2020 signalled a favourable global economic recovery outlook, including increasing mobility, the current expansionary manufacturing and services PMI trends in the US and China, as well as consumption gains recorded by a number of indicators. World trade volume and international commodity prices are increasing in the second semester of 2020 in response to a stronger global economy, which could potentially exceed previous projections. Higher exports in various countries as well as global container indexes point to increasing global trade activity in the third quarter of 2020. High uncertainty in the global financial markets stems from geopolitical issues between China and the United States, China and India as well as in the UK. Such inauspicious developments have eroded capital flows to developing economies, except China, and perpetuated currency pressures in such countries, including Indonesia.

The domestic economy is also recovering, albeit gradually in line with public mobility in August 2020. Export performance improved during the reporting period on higher global demand, from the US and China in particular, for several commodities, including iron and steel, pulp and waste paper as well as crude palm oil (CPO). Meanwhile, household consumption recorded limited gains in line with ongoing fiscal stimuli in the form of social aid program (bansos) disbursements as well as 13th-month salary compensation for civil servants. Several early indicators have also improved, such as retail sales, the consumer confidence index and manufacturing PMI. Regionally, economic gains have been recorded in several regions outside Java endowed with export commodities. Moving forward, the domestic economic recovery outlook will predominantly be influenced by public mobility in line with the enforcement of COVID-19 protocols in several regions, the speed of central and local government budget realisation, progress in terms of loan restructuring and guarantees, as well as expansion of the digital economy and finance, with a focus on SME empowerment. Through its policy mix, Bank Indonesia will continue to strengthen synergy with the Government and other relevant authorities to ensure the various policies taken are effective in stimulating the economic recovery.

External sector resilience has remained solid in the third quarter of 2020 despite a rebalancing of foreign capital flows in domestic financial markets during the month of September. A narrower current account deficit is expected as exports continue to gain momentum coupled with lower imports due to compressed domestic demand. In August 2020, the trade balance maintained a USD2.33 billion surplus after amassing a USD3.24 billion surplus one month earlier. In the third quarter of 2020, foreign portfolio investment recorded a net inflow of USD0.13 billion at the end of August 2020 before experiencing a net outflow totalling USD0.75 billion in the first two weeks of September 2020 in response to increasing financial market uncertainty given the global and domestic factors. On the other hand, the position of reserve assets increased to USD137.0 billion at the end of August 2020, equivalent to 9.4 months of imports or 9.0 months of imports and servicing government external debt, which is well above the international adequacy standard of three months. Moving forward, Bank Indonesia projects a low current account deficit below 1.5% of GDP in 2020, thus reinforcing external sector resilience.

Consistent with Bank Indonesia’s stabilisation measures, rupiah exchange rates have remained relatively stable despite intense currency pressures during August and September 2020. As of 16th September 2020, the rupiah had depreciated 1.58% (ptp) compared with the end of July 2020 or by 6.42% relative to the end of December 2019. The rupiah lost value in August and September 2020 due to heightened global financial market uncertainty stemming from global factors as well as several domestic risks. Moving forward, Bank Indonesia expects the rupiah to regain lost value as the currency is still fundamentally undervalued, supported by low and stable inflation, a narrow current account deficit, highly attractive domestic financial assets for investment as well as a lower risk premium in Indonesia. Bank Indonesia will continue to strengthen exchange rate stabilisation policy in line with the rupiah's fundamental value and market mechanisms through effective monetary operations and by providing market liquidity. 

Inflation remains low on weak domestic demand and adequate supply. In August 2020, the Consumer Price Index (CPI) recorded 0.05% (mtm) deflation, thus bringing CPI inflation for the year to 0.93% (ytd). Annually, low headline inflation was recorded at 1.32% (yoy), down from 1.54% (yoy) in the previous period. Core inflation also remains low on weak demand, policy consistency by Bank Indonesia to anchor inflation expectations as well as maintained exchange rate stability. In addition, inflationary pressures on administered prices are mild in response to lower airfares, while volatile foods experienced deflationary pressures in the reporting period as a result of sluggish demand, adequate supply during the harvesting season and uninterrupted distribution. Bank Indonesia projects inflation for 2020 and 2021 to remain under control within the 3.0%±1% target corridor. Furthermore, Bank Indonesia consistently maintains price stability and strengthens policy coordination with the central and local governments to control inflation within the target range.

Excess liquidity has lowered interest rates and is conducive to economic financing. As of 15th September 2020, Bank Indonesia has injected around Rp662.1 trillion of additional liquidity into the banking system through quantitative easing, primarily in the form of lower reserve requirements totalling Rp155 trillion and monetary expansion totalling Rp491.3 trillion. Loose liquidity conditions pushed up the ratio of liquid assets to deposits in August 2020 to 29.22%, coupled with a low overnight interbank rate of 3.31% in the reporting period. Furthermore, loose liquidity and a policy rate (BI7DRR) reduction contributed to lower deposit and lending rates from 5.63% and 9.47% in July 2020 to 5.49% and 9.44% in August 2020 respectively. Meanwhile, the benchmark 10-year SBN yield increased from 6.83% in July 2020 to 6.87% in August 2020 and 6.92% as of 15th September 2020 in line with the rebalancing process by foreign players in domestic financial markets. In terms of monetary aggregates, M1 and M2 growth accelerated to 19.3% (yoy) and 13.3% (yoy) respectively in August 2020, primarily driven by expansive fiscal operations. Moving forward, monetary expansion by Bank Indonesia, which has thus far remained in the banking industry, is now expected to effectively stimulate national economic recovery momentum in line with faster budget realisation and the loan structuring program.

Bank Indonesia continues to strengthen synergic monetary expansion through the acceleration of fiscal stimuli by the Government to drive the national economic recovery. Bank Indonesia continues its commitment to funding the 2020 state budget through SBN purchases in the primary market in accordance with Act No. 2 of 2020 through market mechanisms and private placements as part of the efforts to accelerate the national economic recovery program, while maintaining macroeconomic stability. As of 15th September 2020, Bank Indonesia had purchased Rp48.03 trillion of SBN in the primary market through mechanisms pursuant to the Joint Decree of the Minister of Finance and Governor of Bank Indonesia issued on 16th April 2020, through auction schemes, greenshoe options (GSO) and private placements. Meanwhile, funding realisation and burden sharing to fund Public Goods in the State Budget by Bank Indonesia through private placements based on the Joint Decree of the Minister of Finance and Governor of Bank Indonesia issued on 7th July 2020 currently stand at Rp99.08 trillion. Through Bank Indonesia's commitment to purchase SBN in the primary market, the Government can focus on accelerating state budget realisation in order to stimulate national economic recovery. In addition, Bank Indonesia has also realised burden sharing with the Government to fund Non-public Goods-SME totalling Rp44.38 trillion in accordance with the Joint Decree of the Minister of Finance and Governor of Bank Indonesia issued on 7th July 2020.

Financial system stability has been maintained, although the risks associated with COVID-19 transmission on financial system stability continue to demand vigilance. The Capital Adequacy Ratio (CAR) remained high in July 2020 at 22.96%, accompanied by low NPL ratios of 3.22% (gross) and 1.15% (nett). Nonetheless, the intermediation function of the financial sector remains weak as a corollary of subdued loan growth in line with compressed domestic demand as the corporate sector continues to reel from the impact of COVID-19, coupled with a cautious banking industry. Growth of outstanding loans disbursed by the banking industry was low at 1.04% (yoy) in August 2020, while deposit growth stood at 11.64% (yoy). Moving forward, Bank Indonesia expects the bank intermediation function to rebound in line with the domestic economic recovery. Several economic sectors have recorded faster credit growth, namely Agriculture, Mining and Transportation. In addition, as of August 2020, bank loan restructuring accounted for 18.64% of total credit, supported by maintained liquidity. Such developments, accompanied by faster national economic recovery momentum through stronger credit guarantees by the Government, are expected to stimulate the bank intermediation function. Furthermore, Bank Indonesia will maintain an accommodative macroprudential policy stance in order to stimulate lending and accelerate the economic recovery.

Payment system availability, both cash and non-cash, remains uninterrupted. Growth of currency in circulation decreased from 6.17% (yoy) in July 2020 to 5.82% (yoy) in August 2020, reaching Rp762.1 trillion. Congruently, transaction value using ATM/debit cards, credit cards and electronic money recorded a 13.94% (yoy) contraction in July 2020. Notwithstanding, increases in terms of transaction value and volume were recorded as the public continues to shift towards digital instruments. Transaction value using electronic money maintained strong 24.42% (yoy) growth in July 2020, while growth of digital banking transaction volume remained high at 38.81% (yoy) in the reporting period. Bank Indonesia predicts various payment system transactions to maintain upward momentum in line with the economic recovery outlook and various digital economic and financial innovations. The proliferation of collaboration amongst digital economy and finance players through Application Programming Interface (API) technology, including banks and nonbanks, is indicative of a strong industry response towards Bank Indonesia's efforts for inclusive digital transformation, as contained within the Indonesia Payment System Blueprint 2025 (BSPI), including strengthening SME digitalisation. Moving forward, Bank Indonesia will continue to accelerate BSPI implementation by improving relevant infrastructures, regulations and incentive mechanisms through payment system policy, including supporting the effectiveness of various government economic recovery programs.

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

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