Statement by the Governor of Bank Indonesia: BI Rate Held at 8.0% - Bank Sentral Republik Indonesia
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August 21, 2019
No.10/ 8 /PSHM/Humas

In the Board of Governors' Meeting convened today, Bank Indonesia decided to hold the BI Rate at 8.0%. This decision follows an evaluation of Indonesia's macroeconomic conditions in 2007, the economic and monetary outlook, various risks confronting the economy and achievement of the short and medium-term inflation target, set at 5%±1% for 2008, 4.5%±1% for 2009 and 4%±1% for 2010.
 
Overall economic conditions in Indonesia remain stable. In preliminary figures, economic growth in 2007 is on target with the earlier 6.3% growth projection in the 2007 budget. Key factors driving this growth are rising household consumption and exports. The supply side has also demonstrated adequate response to increased demand.
 
"Bank Indonesia is closely monitoring developments following events in recent weeks, particularly in regard to the potential for a US economic recession, in addition to escalating commodity prices on international markets and continued turbulence on global financial markets," emphasised Bank Indonesia Governor Burhanuddin Abdullah. In Bank Indonesia's assessment, the impact of the world economic slowdown on Indonesia's economic expansion can still be partially offset through even greater diversification of export destinations, thus easing dependence on trade with the developed world. Dampening the impact of the economic slowdown is the current surge in intraregional trade in Asia. Domestic demand in China and India has fuelled opportunities for continued high export performance, with demand for non-oil and gas commodities playing a vital role.
 
"Indonesia's balance of payments recorded an estimated first quarter surplus. Combined with positive sentiment in response to the policy stance of the monetary authority and the Government, the surplus helped maintain a stable exchange rate accompanied by low volatility during January 2008. At the end of the month, the rupiah was showing an appreciating trend," added Burhanuddin. Also important was a renewed surge in capital inflows near the end of January 2008. International reserves at end-January reached USD56 billion, equivalent to 5 months of imports and servicing of official foreign debt.
 
Domestic inflationary pressure mounted in response to escalating international oil and food commodity prices. CPI inflation reached 1.77% (m-t-m) in January 2008, representing an annual rate of 7.36%. This is explained mainly by volatile foods inflation and core inflation driven by high commodity prices, the weakening in the rupiah in early January 2008 and slightly increased inflation expectations compared to the previous period.
 
Banks showed further improvement in performance with the strengthening of the intermediary function alongside financial system stability. Indonesia's banking assets reached Rp 1,986.5 trillion in December 2007, representing annual growth of 17.3% (y-o-y). Alongside this, bank lending at end-2007 came to Rp 1,045.7 trillion. Credit expansion in December 2007 reached Rp 41.05 trillion, bringing credit expansion for the year to 25.5% (y-o-y). At this level, lending growth was well ahead of the targeted 22%. Similarly, bank lending to micro, small and medium business loans surpassed the 20% targeted expansion with growth in 2007 at 22.5%.
 
More vigorous credit expansion was matched by improvement in the Loan to Deposit Ratio (LDR), which mounted to 69.2%. Like before, the increased LDR was balanced with appropriate management of credit risk in the banking system, demonstrated by the reduction in NPLs gross from 6.98% to 4.64% (y-o-y) and NPLs net from 3.63% to 1.94% (y-o-y).
 
The Board of Governors is also cognizant of the various risks and challenges to the economy that lie ahead, particularly for achievement of the inflation target. Nevertheless, it is envisaged that these external impacts will be quickly mitigated through the various measures in place, reinforced by strong coordination between the Government and Bank Indonesia. Through this, inflation in 2008 can be brought within a downward trend in the 6.0%-6.5% range. Among the Government actions for mitigating this impact is the recently-introduced price stabilisation programme. "To achieve the inflation target, it will be necessary to maintain macroeconomic and financial system stability through close coordination between the Government and Bank Indonesia so that the inflation targeting success of the past 2 years can also be replicated in 2008," added Burhanuddin.
 
In response to these challenges and risks, Bank Indonesia will maintain a measured, prudent course in monetary policy while closely monitoring the various dynamics of the economy. The Bank Indonesia monetary policy stance will remain focused on building macroeconomic stability in support of sustainable economic growth through consistent application of the Inflation Targeting Framework (ITF). Bank Indonesia will also press forward with the consolidation programme for a sound, strong and competitive banking system. Alongside this, further efforts will be pursued for improvement in the bank intermediary function so that business financing needs can be properly met.

Jakarta, 6 February 2008
Office of The Governor
 
 
 
Amril Arief
Director

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