BI Rate unchanged at 6.5% - Bank Sentral Republik Indonesia
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April 18, 2019

No. 12/17/PSHM/Humas

In the Board of Governors Meeting convened on 6 April 2010, Bank Indonesia decided to maintain the BI Rate at 6.5%. Evaluation of economic performance during Q1/2010 and the future outlook indicates that the BI Rate at this level is consistent with achievement of the inflation target for 2010 and 2011, set at 5%±1%. In the opinion of the Board of Governors, the BI Rate remains conducive to efforts to boost economic recovery, ensure financial stability and promote banking intermediation.

The Board of Governors believes that the domestic economy will continue to forge ahead on the strength of more conducive performance in the global economy. Developments in Q1/2010 suggest that global economic recovery, led by the United States, China and India, is faster and more robust than originally predicted. At the same time, the resolution of the Greece debt crisis has so far met with positive response from economic actors, with impact limited to financial markets. The recovery in the global economy alongside improved perceptions of risk has bolstered optimism on financial and commodity markets, as reflected in faster than predicted strengthening in indicators for the capital market, commodity prices and volume of world trade. Similar improvements have taken place in global capital inflows into emerging markets, including Indonesia.

The strengthening in the domestic economy is reflected in positive external developments, the appreciating exchange rate, price stability and the outlook for more robust economic growth. The improvement in the global economy brought gains to Indonesia's external sector performance in Q1/2010, reflected mainly in a higher than expected current account surplus in the balance of payments. Exports were up not only for resource-based commodities, but also manufactured products. Imports have also mounted in response to more vigorous domestic demand and exports. These positive changes are also consistent with the Bank Indonesia assessment of regional economic developments marked by increased exports of estate and mining products. In the balance of payments, the capital and financial account also posted a surplus on the back of sustained capital inflows spurred by improving macroeconomic conditions, attractive yields on rupiah placements and declining investment risk. Responding these developments, international reserves at end-Q1/2010 reached USD71.8 billion, equivalent to 5.8 months of imports and servicing of official debt.

The rupiah exchange rate maintained an appreciating trend in keeping with improvement in economic fundamentals and lower investment risk. The average value of the rupiah in Q1/2010 strengthened by 2.2% as a result of a more robust balance of payments, declining risk perceptions and attractive yields. Improvement in risk indicators was reflected in Indonesia credit default swaps (CDS), now at an unprecedented low, as well as the yield spread for Indonesia government bonds over US Treasury Notes and the upgrading of Indonesia's rating.

Concerning prices, reduced inflationary pressure in Q1/2010 was indicated by the March 2010 deflation at 0.14% (mtm), bringing annual CPI inflation to 3.43% (yoy). Inflationary pressure eased mainly on subdued inflation expectations, which have benefited from the appreciating trend in the rupiah and adequate supply-side response to demand. Further contribution to low inflationary pressure came from reduced pressure from volatile foods inflation (led by rice) with the arrival of the harvest season and the minimum inflationary pressures generated by administered prices. This reduction in inflation bears out the assessment of the Board of Governors that no significant inflationary pressure will emerge at least during the first half of 2010. For 2010 as a whole, the Board of Governors is confident that inflationary pressures will remain low with inflation on track for the lower limit of the 5%±1% targeting range.

In the financial sector, stability in the banking system remained firm alongside substantially high capital ratios and low ratios for non-performing loans. The stability of the banking system was reflected in the progressive easing in the Financial Stability Index (FSI) as at end-March 2010, with levels safely within the prescribed maximum indicative limit. Although the banking intermediation function is not fully operating at the desired level, lending growth at end-March 2010 was recorded at 11% (yoy), commensurate with strengthening confidence among economic actors in the improving outlook for the economy. At the micro level, the banking industry remains in stable condition reflected in the high capital adequacy ratio (CAR) and subdued level of non-performing loans (NPLs), the latter below 5%.

The heartening developments in the global and domestic economy during Q1/2010 are predicted to continue, reinforcing the confidence of the Board of Governors in a more buoyant outlook for the Indonesian economy compared to earlier forecasts. Economic growth in 2010 is forecasted in the 5.5%-6.0% range, ahead of the originally predicted 5.0%-5.5%. The upbeat economic outlook is not driven solely by vigorous consumption, but also export growth as the recovery in the global economy takes hold. Rising demand accompanied by improvement in the investment climate is expected to produce significant growth in investment. The resurgence in the economy is predicted to carry forward into 2011 with growth possibly reaching 6.0%-6.5%. Adequate supply-side response to the growing demand is expected to keep future inflationary pressures at a modest level.

For the future, monetary policy will continue to focus on maintaining a consistent level of low inflation while giving careful consideration to measures to accelerate economic recovery. Various measures will be taken to promote the effectiveness of monetary policy transmission, including strengthening the efficiency of the banking system. In addition, Bank Indonesia will proceed with actions to manage risks to ensure continued monetary stability and financial system stability. Specific actions include management of excess liquidity in the money market and banking system at levels conducive to the maintenance of monetary stability and financial system stability and management of inflation expectations with the use of more effective monetary policy communications. Policy coordination with the Government for control of inflationary pressures is also being strengthened through the Inflation Control Team (TPI) at the central government and regional levels (TPIDs). Concerning the banking system, Bank Indonesia will monitor and promote improvement in bank efficiency for more optimum operation of the banking intermediation function.

A complete report on the deliberations of the April 2010 Board of Governors Meeting, featuring macroeconomic developments, monetary policy and the future outlook, will be presented in the Monetary Policy Review (MPR) on the Bank Indonesia website (www.bi.go.id).

Jakarta, 06 April 2010
Office of the Governor

Difi A. Johansyah
Head of Bureau

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