Statement by the Governor of Bank Indonesia: Bank Indonesia Lowers BI Rate 25 bps to 8.75% - Bank Sentral Republik Indonesia
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October 29, 2020
No. 9/ 18 /PSHM/Humas

Today, the Board of Governor’s Meeting at Bank Indonesia (BI) decided to lower the BI Rate by 25 bps from 9% to 8.75%. This decision was based on an evaluation of progress toward the inflation target, set at 6%±1 and 5%±1% for 2007 and 2008, identification of various risks and assessment of current economic conditions.
“Economic indicators have improved within a context of relative stability in macroeconomic conditions and the financial system. The economy is showing early signs of expansion driven by export performance and renewed growth in private sector investment,” explained Bank Indonesia Governor Burhanuddin Abdullah. Alongside this, rising aggregate demand has been compensated by increased utilisation of production capacity and drawing down of inventories. Under these conditions, economic growth during Q1/2007 remained on track with earlier forecasts at 5.4%. 

In Q2/2007, the economy is predicted to grow by 6%, surpassing the original 5.9% projection (y-o-y). “There are growing signs of improvement in the real sector in Q2/2007 and this trend will be reinforced by the reduction in the BI Rate announced today. In addition, we are confident of achieving the 2007 inflation target,” added Burhanuddin.  Within the context of consistent implementation of the Inflation Targeting Framework (ITF), the current BI Rate also takes into account the various pressures and risks that could cause inflation to deviate from the planned target.

The Board of Governors believes that the present monetary policy will provide added stimulus for the economy as a whole. This is reflected in movement in the exchange rate, share prices and yield on government securities traded on financial markets, as well as improvement in the business climate. The BI Rate is expected to provide banks with greater leeway to bring lending rates down to levels that would promote increased financing for the real sector. 
Consistent with these trends, CPI inflation remained at a subdued level. With 0.16% deflation recorded for April 2007, annualised CPI inflation eased from 6.52% in March to 6.29%. Contributing to the lower CPI inflation were falling prices in volatile foods, notably rice and some seasonings and vegetables, following sharp increases in preceding months. Core inflation remained steady in line with the appreciation in the rupiah.
The rupiah maintained a steady appreciating trend alongside reduced volatility. Measured as an average, the rupiah strengthened to Rp 9,096 to the USD during April from Rp 9,196 to the USD in March. The rupiah appreciation has maintained a gradual pace, with the exchange rate reaching an average of Rp 9,052 to the USD in the first week of May 2007. This appreciation has taken place alongside a balance of payments surplus supported by mounting export performance, the global weakening in the US dollar alongside consolidation in the US economy and persistent levels of excess global liquidity. With the added factors of domestic risks at subdued levels and attractive yields on rupiah instruments, these developments have encouraged more capital inflows, contributing to the stronger rupiah.

In the banking sector, industry performance has demonstrated overall gains. Despite the intermediary function operating below par, bank lending at end of March 2007 was up from 2006.  During March, credit expanded by Rp 16.7 trillion to Rp 843 trillion, contributing to an improvement in the LDR from 6.47% in December 2006 to 65.3%. In addition, other sources of economic financing showed a rising trend. Issuance of private sector bonds widened by Rp 3 trillion in March 2007. This is likely to be followed by other planned issues of capital market securities. NPLs eased to 6.6% (gross) and 3.1% (net) in March 2007 from 6.8% (gross) and 3.4% (net) in the previous month. With this expansion in lending, total assets mounted by Rp 11.5 trillion (m-t-m) to Rp 1,705 trillion. The capital adequacy ratio (CAR) also remained stable at 20.7%. The credit expansion had positive impact on bank profitability. Net interest income (NII) improved slightly to Rp 7.7 trillion from Rp 7.3 trillion in the preceding month, while return on assets (ROA) held steady at 2.7%.

Looking ahead, the economic growth projection for 2007-2008 is still on track with the earlier forecasts of 6.0% for 2007 and 5.7%-6.7% for 2008. The slow rate at which private consumption is gathering momentum in 2007 is expected to be compensated by the substantial increase in government spending.  Government efforts to improve the investment climate and the accelerated infrastructure development programme are expected to push investment growth to higher levels.

BI will keep a close watch on macroeconomic developments with the ultimate objective of achieving price stability. In monetary policy, BI will maintain a prudent, measured course with careful observation of the dynamics in the economy. To this end, BI will also maintain support for government efforts to stimulate the domestic economy with particular emphasis on resolution of issues of national importance such as unemployment and poverty.

Jakarta, 8 May 2007
Directorate of Strategic Planning
and Public Relations

Budi Mulya



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