Statement by the Governor of Bank Indonesia: BI Rate Held at 8% - Bank Sentral Republik Indonesia
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November 25, 2020
No.10/ 12 /PSHM/Humas

In the Board of Governors' Meeting convened today, 6 March 2008, Bank Indonesia decided to maintain the BI Rate at 8%. This decision was taken after consideration of the outlook and challenges for achieving the Government-set inflation target for 2008 and 2009 and in-depth assessment of macroeconomic conditions in Indonesia.

"Indonesia's overall macroeconomic stability and financial system stability remains sound amid adverse global economic conditions," affirmed Bank Indonesia Governor Burhanuddin Abdullah. The strength of Indonesia's economic fundamentals and subdued risk are reflected in the gains in the domestic financial market and upgrading of Indonesia's sovereign rating alongside increased capital inflows that have strengthened the value of the rupiah and held off further rises in inflationary pressure.

The Q1/2008 balance of payments is predicted to chart a healthy surplus bringing international reserves as of February USD57.1 billion, equivalent to 5.2 months of imports and servicing of official foreign debt. The solid balance of payments performance in February 2008 reinforced the stability of the rupiah, which appreciated 2.4% over the preceding month to an average of Rp 9,181.00 to the USD while charting low volatility.

"Although impact can be mitigated, the global economic slowdown amid soaring food commodity and energy prices and mounting world inflationary pressure augurs for slowing growth in the domestic economy and rising inflationary pressure," added Burhanuddin. Economic growth in 2008 is predicted to come short of earlier projections with growth in exports, private consumption and private investment falling short of original projections.

The continued rise in world food commodity prices again impacted inflation in February 2008, although less than in the preceding month. CPI inflation reached 0.65% (m-t-m) in February 2008, representing an annual rate of 7.40%. Inflation was driven primarily by volatile foods, which recorded the highest monthly inflation at 1.63% (mtm) or 11.66% (yoy), followed by core inflation at 0.76% (mtm) or 7.33% (yoy).

Financial system stability remained sound amid the ongoing turmoil on global financial markets and escalating prices for staple commodities. The banking system continued to perform well despite more modest lending and mobilisation of depositor funds. Bank lending in January 2008 contracted by Rp 14.6 trillion (1.4%) to Rp 1,031.1 trillion, with working capital credit and the trade sector recording the steepest decline. Depositor funds were similarly down 2.6% from Rp 1,510.7 trillion (December 2007) to Rp 1,471.2 trillion (January 2008). The steeper decline in depositor funds compared to credit resulted in an increase in the LDR from 69.2% (December 2007) to 70.1% in January 2008. The initial downturn in lending is a regular occurrence each year and credit expansion is expected to resume in February. Alongside the increase in the LDR, NPLs held steady at below 5%, with figures of 4.82% gross and 2.82% net.

Looking ahead, Bank Indonesia is also cognizant of the various risks and challenges to the economy that lie ahead, particularly for achievement of the inflation target. Nevertheless, with renewed efforts coupled with close coordination between the Government and Bank Indonesia, as reflected in the stabilisation policies for food prices and the exchange rate, inflationary pressure can be kept to a minimum. 

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 to safeguard macroeconomic stability in support of sustainable economic growth. 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 effectively met.
Jakarta, 6 March 2008
Directorate of Strategic Planning
and Public Relations
Amril Arief



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