Bank Indonesia Lowers BI Rate 25 bps to 6.75% - Bank Sentral Republik Indonesia
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May 27, 2019

No. 11/18/PSHM/Humas

Today, Bank Indonesia decided to lower the BI Rate by 25 bps to 6.75%. This rate cut is expected to pave the way for accelerated credit expansion amid well subdued conditions of macro stability.

Global economic developments in Q2/2009 indicate that a process of recovery has begun. Developed nations are showing initial signs of stabilisation on the path to recovery in their economies. In emerging markets, such as China, India and South Korea, economic recovery is gathering momentum. Positive expectations for this recovery in the global economy have fuelled sentiment among global financial market actors, which in turn has stimulated capital flows into Indonesia.

The improving trend in the global economy had a positive impact on Indonesia’s economic performance in Q2/2009. Improvement in trading partner economies has led to improvement in Indonesian exports, with the current account posting a USD2.2 billion surplus. Concerning domestic demand, consumption is forecasted to maintain buoyant growth surpassing 5% alongside progressively lower inflation. However, under the present conditions of continued weakness in demand and low levels of capacity utilisation, investment activity remains limited. In view of these developments, economic growth during Q2/2009 is estimated in the range of 3.7%-4.0%.

In regard to prices, inflation continues on a downward trend. In June 2009, CPI inflation came to 0.11% (mtm) or 3.65% (yoy), far below historical levels. Inflationary pressure from rising international market prices for some food commodities was still offset by appreciation in the rupiah and persistent slack in domestic demand. Adequate supply and smooth distribution of food staples also helped curb inflation in Q2/2009.

The rupiah exchange rate underwent 9.99% appreciation during Q2/2009. The continued positive condition of economic fundamentals, orderly national elections and positive sentiment in the global economy has boosted capital inflows to the domestic market. Positive capital inflows alongside improvement in exports resulted in a positive contribution to the balance of payments. At end-June 2009, international reserves stood at 57.6 billion US dollars, sufficient for 5.6 months of imports and servicing of official external debt.

In the financial sector, the stability of the national banking system held firm with a substantially high CAR at 17.3% and NPLs within safe limits at below 5%. Liquidity in the banking system, including the interbank money market, has progressively improved alongside growth in depositor funds. Despite limited response in bank interest rates and lending well short of desired levels, bank lending plans show signs pointing towards more vigorous expansion in coming months.

Looking forward, during 2009 the Indonesian economy is projected to outperform earlier growth projections alongside steady decline in inflation. Bank Indonesia forecasts that in 2009, Indonesia’s economic growth will reach the upper end of the 3.5%-4.0% range. During the second half of 2009, domestic economic growth will continue to be driven by domestic demand and most importantly by consumption, alongside low inflation. In 2009, inflation is projected below the original forecast, with potential to fall to below even the 5% level in line with improving inflation expectations and measures to safeguard the supply and distribution of food staples.

Bank Indonesia is maintaining a close watch on the potential for inflationary pressure in 2010, including potential for increases in world commodity prices. Within this context, future monetary policy will be directed at striking a balance between boosting the domestic economy and measures to safeguard macroeconomic and financial system stability in the medium-term. Accordingly, future monetary policy will pursue a more prudent bias in view of the increasingly limited room for monetary relaxation. In addition, Bank Indonesia and the Government will maintain close coordination to anticipate various dynamics soon to emerge in the economy.

A complete account of the deliberations of the July 2009 Board of Governors’ Meeting, presenting macroeconomic developments, monetary policy and the outlook for 2009, will be published in the Monetary Policy Report (MPR).

Jakarta, 3 July 2009
Bank Indonesia
Office of the Governor 

Didy Laksmono R.
Bureau Chief

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