Statement of Bank Indonesia Governor: BI Fixed Rate at 12.50% Level - Bank Sentral Republik Indonesia
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April 18, 2019

No. 8/32 /PSHM/Humas


On this day, Tuesday, 6 June 2006, the Board of Bank Indonesia Governors held a meeting (RDG) to evaluate the economic, monetary and banking development and determine the monetary policy stance in the future. In May 2006, the pressure on the macroeconomic stability, notably triggered by adjustment of foreign portfolio as a response to the possibility of the continuing global tight monetary policy, particularly by the Fed. In Indonesia, the foreign behaviour was reflected in the significant capital outflows that significantly pressured the rupiah exchange rates. In the previous period, the rupiah was in a strengthening tendency but in May it was depreciated by 5.09% (mtm).
 
The assessment results indicated that the development did not pressure inflation significantly. The monthly increased inflation in May 2006 was particularly encouraged by the seasonal factors reflected in the increased volatile foods group in line with the passing of the big harvest. The IHK inflation was recorded at 0.37% (mtm) or 15.60% (yoy).

On the banking side, numerous indicators showed that the national banking performance was generally improving. Up to the end of May 2006, the banks generally still could cope well with the business risks facing them as was reflected by the default credit ratio (NPL) that appeared to decline, and the credits distributed were increasing. After experiencing an increase by about Rp. 7 trillion in March 2006, the amount of bank credits in April 2006 increased by approximately Rp. 10.7 trillion. In line with the increased credits, the NPL ratio declined from 9.4% (gross) in the previous month to 9.2% at the end of 2006.

In the future, if there are no substantial shocks, the IHK inflation of 2006 and 2007 is estimated to stay in their targeted range, namely 8±1% and 6±1% (yoy) respectively. However, there are a number of external as well as internal risk factors potential to increase pressure on the exchange rate and IHK inflation in 2006 as well as in 2007. On the external side, the risks were particularly related to high oil prices, uncertain direction of the Fed exchange rate and strict global monetary policy. Meanwhile, on the internal side, the risks particularly originated from the potential inflationary pressure from the administered prices relating to the government’s plan to increase HPP of grains and transportation tariffs, particularly the economy-class train.

Taking into account the numerous developments above, the Bank Indonesia Board of Governors Meeting today decided that the BI fixed rate should be maintained at the 12.50% level. In the future, if the results of the comprehensive assessment of the economic prospect indicate that such risks have decreased, then the BI Rate may be reduced further.

 

Jakarta, 6 June 2006
Directorate of Strategic Planning
and Public Relations

Budi Mulya
Director

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