Macroeconomic and Financial System Stability Firm : BI Rate Unchanged at 8.25% - Bank Sentral Republik Indonesia
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October 25, 2020
No.9/ 38 /PSHM/Humas

The Board of Governors' Meeting at Bank Indonesia today decided to keep the BI Rate steady at 8.25%. Today's decision is based on a comprehensive discussion and evaluation of economic projections and developments, the outlook for achievement of the inflation target for 2007 and 2008 and identification of risks.

Bank Indonesia is also keeping a close watch on current developments with particular focus on escalating world oil prices and the continuing fallout from the subprime mortgage crisis in the United States, while also assessing the impact of these events on the national economy. According to this assessment, the current escalation in oil prices is expected to have only limited impact on ecomomic expansion and inflation. With Indonesia's growing economic resilience, the processes for strengthening economic growth are expected to remain stable and on track.

Inflation at end-2007 is predicted to remain within the original 6%±1% targeted range. Concerning 2008, Bank Indonesia sees the potential for increased risk in some areas that could exacerbate future inflationary pressures. This calls for even more intensive efforts from all sides in anticipating heightened risk of price increases in order to stay on track for the 5%±1% inflation target for 2008. The risks requriing close monitoring include: the rising trend in world oil prices and the associated potential for price increases across a wide range of commodities, including CPO, rubber and other non-oil and gas agricultural exports; the ongoing turmoil in global financial markets brought about by the subprime mortage cdrisis; and steadily mounting public expectations of future inflation.  All of these factors were considered in Bank Indonesia's decision concerning the BI Rate in November 2007.

CPI inflation measured year-on-year was down from the preceding month. In October 2007, CPI inflation eased to 6.88% compared to the 6.95% recorded in September 2007. However, it is important to note the rise in core inflation from 6.03% to 6.13%. This increase is explained by higher inflation from prices of imported goods brought on by rising world commodity prices. Added upward pressure in core inflation came from persistently high public expectations of future inflation. In contrast, inflationary pressure from volatile foods and administered prices eased in comparison to the previous month.

The average value of the rupiah in October showed some appreciation compared to the preceding month. This strengthening of the rupiah was accompanied by low, reduced volatility. On average in October 2007, the rupiah traded at Rp 9,101, representing 2.2% appreciation over Rp 9.305 in September 2007. The appreciation in the rupiah was driven more by strong fundamentals and rising trend in global currencies against the US dollar. This trend also helped push the JSX Index, buoyed among others by capital inflows, to an all-time high in October 2007 of 2,638 points.

In general, the Indonesian economy remains on track with earlier forecasts. During Q3/2007, economic growth reached an estimated 6.3% on the strength of higher consumption and exports. The balance of payments in Q3/2007 again recorded an estimated surplus, although more modest than the surplus of Q2/2007. This surplus was generated mainly in the current account, where performance constrasted with the reduced surplus in the capital and financial account. International reserves at the end of October 2007 thus stood at 54.2 billion US dollars, equivalent to 5.5 months of imports and servicing of official debt. 

Concerning Indonesia's banks, various financial and operational indicators attest to the continued resilience of the banking system.  The intermediary function showed further improvement marked by a steady upward trend in lending to about Rp 957 trillion, representing an annual credit expansion of 21.5%. In a similar vein, bank depositor funds mounted again to Rp 1,401 trillion, with annual growth at 16.42%. Bank NPLs fell significantly from 6.31% to 5.35% (gross) and 2.84% to 2.60% (net). This decline came in the wake of the restructuring of bad debts at Indonesia's state-owned banks.

Looking ahead, Bank Indonesia predicts that with appropriate, coordinated actions and policy strategy, the Indonesian economy will hold its ground while riding out the latest global developments. The present condition in Indonesia differs by far from 2005, with vastly improved resilience in monetary affairs, financial system stability and fiscal management. In view of the current progress in macroeconomic and financial system stability, it remains an opportune time for members of society and the nation as a whole to seize this trend as a pillar for future economic development. The various actions taken by the Government to ensure the smooth distribution of staple goods, improve effectiveness in use of budget funds at the regional government level and of capital expenditures for infrastructure development, and other measures to eradicate fuel smuggling will bring enormous benefit in sustaining the existing momentum for economic growth.

In this regard, Bank Indonesia will maintain a measured, prudent course in monetary policy while closely monitoring the various dynamics of the economy. In Bank Indonesia's view, the unchanged BI Rate can still provide stimulus for Indonesia's future economic growth in view of the room still available to banks to make further reductions in their interest rates.

Jakarta, 6 November 2007.
Directorate of Strategic Planning
and Public Relations

Dyah Virgoana Gandhi
Bureau Chief



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