Economy Consolidating, Macroeconomic Stability Firm, BI Rate Lowered 25 bps to 8.25% - Bank Sentral Republik Indonesia
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April 18, 2019

No. 9/24/PSHM/Humas


The Board of Governors’ Meeting at Bank Indonesia for July 2007 has decided to lower the BI Rate by 25 bps to 8.25%. Today’s decision was taken after a comprehensive evaluation of the improving economic conditions and outlook and progress in inflation targeting for 2007 and 2008, currently on track for the 6%±1% and 5%±1% targets set for the two years.

 

During Q2/2007, the Indonesian economy remained firmly on the right track with economic expansion moving forward. Inflation was subdued with a declining trend. Financial market stability was well in hand with improving performance in the banking system. Indonesia’s balance of payments outperformed earlier forecasts with an expanding surplus and mounting international reserves alongside appreciation in the rupiah exchange rate. These developments are expected to underpin stronger and more balanced economic growth in 2007 and 2008.

 

The ongoing consolidation in the economy and firm macroeconomic stability has created greater leeway for sustainable development policies aimed at reinforcing the foundations for national economic resilience. In view of the existing regional autonomy and expected launching of the ASEAN Economic Community in 2015, these foundations will be yet stronger if supported by regional development policies prioritising quality human resources, food and energy sustainability and improvements to regional governance, including the economic role of regional administrations. For the future, Bank Indonesia is keenly aware of the importance of close coordination among all stakeholders at the regional level, including the Bank Indonesia Regional Offices, for cooperation in regional economic development. Bank Indonesia also sees the need for accelerated deepening and diversification of instruments for financial markets, including the Islamic financial market, to reinforce market expectations of continuity in macroeconomic stability. 

 

According to the monitoring and analysis conducted by Bank Indonesia, inflationary pressure has eased in recent periods. Year-on-year CPI and core inflation for Q2/2007 was recorded at 5.77% and 5.4%. The more subdued inflation during this period resulted mainly from deflation in the volatile foods category, despite price increases for some commodities linked to escalating international prices. Core inflation maintained a downward trend with minimal pressure from external factors due to the appreciation in the exchange rate and low imported inflation. Further contribution to reduced core inflation came from supply side capacity to meet demand and stable inflation expectations. Concerning this, Bank Indonesia will maintain a close watch on potential risk of inflation triggered by financial market corrections.

 

In projected figures released for Q2/2007, the balance of payments recorded a USD3.7 billion surplus, up from the forecasted USD1.1 billion. With the balance of payments outperforming expectations, the end-June 2007 international reserves position reached USD51 billion, equivalent to 5.2 months of imports and servicing of official foreign debt. Alongside this, the rupiah appreciated further during Q2/2007. USD representing 1.5% gain from Rp 9,102 to the USD in the preceding quarter.  Also contributing to the currency appreciation were positive developments in fundamentals, reflected in the improved performance of the balance of payments, sustained attractiveness of yields on rupiah placements and low risks.

 

The average exchange rate recorded at the end of June 2007 came to Rp 8,968 to the USD, representing 1.5% gain from Rp 9,102 to the USD in the preceding quarter. Also contributing to the currency appreciation were positive developments in fundamentals, reflected in the improved performance of the balance of payments, sustained attractiveness of yields on rupiah placements and low risks.

 

Looking ahead, economic growth is predicted to gather added momentum during 2007-2008, outperforming original projections. Key to the strengthened optimism for growth is improved performance in consumption and exports. The interest rate cuts by Bank Indonesia are seen as creating greater opportunity for business to take advantage of lower cost financing. For 2007 and 2008, CPI inflation is projected within the inflation targeting range due to declining pressure in CPI inflation, with inflationary pressures easing in the core inflation and volatile foods categories. On the other hand, caution is warranted in view of realised government expenditures that are behind target and the various hurdles to implementation of infrastructure projects that dampened investment growth optimism during Q2/2007.

 

Alongside this, Indonesia’s financial system stability is in sound shape. For the coming quarter, financial system stability is also predicted to remain strong. On 29 July 2007, the Government and Bank Indonesia inaugurated the Financial System Stability Forum envisaged for building closer interagency coordination and cooperation for more intensive monitoring and maintenance of financial system stability.

 

The banking system is moving forward in several areas, most importantly in financial performance. Despite the continued inadequate performance in the bank intermediary function, bank lending and depositor funds continued to climb in May 2007 with expansion recorded at Rp 118.02 trillion (15.8% y-o-y) and Rp 145.31 trillion (12.5% y-o-y). Total bank assets similarly strengthened by Rp 205.94 trillion (y-o-y) to Rp 1,720.90 trillion.

 

In monetary policy, BI will adhere to a prudent, measured course while carefully monitoring the dynamics in the economy. Bank Indonesia will also maintain steadfast support for Government efforts to stimulate the domestic economy, with particular emphasis on resolution of nationally important issues, such as unemployment and poverty.

 

 

Jakarta, 5 July 2007

Office Of The Governor

 

Budi Mulya

Director
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