Statement by the Board of Governors of Bank Indonesia: BI Rate Raised 0.25% to 8.25% - Bank Sentral Republik Indonesia
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May 27, 2019
No. 10/23/PSHM/Humas

In the Board of Governor’s Meeting convened today, 6 May 2008, Bank Indonesia decided to increase the BI Rate by 25 bps or 0.25% to 8.25%. This decision was taken after careful examination and deliberation of conditions and prospects in the global, regional and domestic economy.

“Mounting inflationary pressure has been driven primarily by external factors related to strong international commodity prices and internal factors related to continued high rates of non-food consumption. This calls for appropriate macroeconomic policy responses to safeguard macroeconomic stability and curb future inflationary pressure. Furthermore, to manage future expectations, Bank Indonesia will keep adjusting the BI Rate as appropriate to the inflation trend," affirmed Miranda S. Goeltom, the Senior Deputy Governor of Bank Indonesia currently acting in the capacity of Governor of Bank Indonesia.

Inflation in April 2008 reached 0.57% (mtm), or when measured annually (April 2007-April 2008), 8.96%. At this level, inflation was markedly higher than the annual rate in March 2008 (8.17%). Administered prices climbed significantly from the preceding month due to bottlenecks in supply and distribution of kerosene to some regions.

Core inflation experienced strong upward pressure from rising public expectations fuelled by escalating commodity prices on world markets and also market expectations of an impending rise in fuel prices. Supporting this are the findings of the Consumer Survey and Retailer Survey, which indicate that public inflation expectations are on an upward trend. At the same time, the consumptive nature of economic activity has exacerbated the pressure in core inflation.

The rupiah exchange rate weakened slightly in April 2008 due to pessimism over the global economy and high world oil prices. Measured as an average, the rupiah fell 0.37% from Rp 9,174.00 to Rp 9,209.00. Despite this, fluctuation was kept to a minimum, with volatility reduced from 0.6% to 0.2%. On the other hand, Indonesia's balance of payments again posted a surplus. The balance of payments performance bolstered the stability of Indonesia’s international reserves, recorded in April 2008 at USD58.8 billion or equivalent to 5.3 months of imports and servicing of official debt.

Amid global economic pressures, the banking system maintained a high level of resilience. The bank intermediary function saw further improvement with bank lending expanding by Rp 34.2 trillion in March 2008 to Rp 1,080.1 trillion. As a result, the annualised rate of credit expansion mounted to 28.1% from the previous 26.6%. Accompanying this was a reduction in the NPLs gross and net ratios from 4.78% and 2.1% to 4.33% and 1.78%. Depositor funds were down slightly at Rp 1,466.2 trillion, with the result that the LDR widened to 73.7%.

Looking ahead, the outlook for macroeconomic stability will face considerable challenges if the high level of international commodity prices and risk of global economic slowdown continue unabated. Accordingly, Bank Indonesia will closely monitor economic developments and particularly any surge in inflationary pressure through identification of emerging sources of inflationary pressure. Bank Indonesia is resolutely committed to controlling inflation through more effective, simultaneous use of monetary instruments including the BI Rate, control of exchange rate volatility, absorption of excess liquidity and optimisation of Open Market Operations (OMOs).

To this end, coordination of all policy components with views on economic issues to form a single comprehensive stance will be crucial to minimising the risk of downturn in the national economy. “In BI’s opinion, the government actions to secure the 2008 Budget are adequate to safeguard market confidence and minimise uncertainties, which in turn will sustain the momentum for economic growth," added Miranda S. Goeltom.

Jakarta, May, 6 2008
Office of the Governor

Dyah N.K. Makhijani
Director

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