BI Rate Level Stays at 6.5% - Bank Sentral Republik Indonesia
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May 25, 2019

No. 12/23/PSHM/Humas

In the Board of Governors Meeting convened on 5 May 2010, Bank Indonesia decided to hold the BI Rate at 6.5%. This decision was taken following a comprehensive evaluation of the latest developments in the economy, which is now gathering momentum in line with earlier forecasts. At this level, the BI Rate is regarded consistent with achievement of the 5%±1% inflation target for 2010 and conducive to measures to bolster the economic recovery process, financial stability and banking intermediation.

The Board of Governors sees the global economic recovery process moving ahead with growing intensity, generating positive benefits for the domestic economy and particularly Indonesia's exports. Economic recovery is gaining momentum in the United States and Japan with positive effects felt in Asia's emerging markets such as China, where economic growth is at a 3-year high. Optimism for global economic recovery is gathering pace despite risks related to the crisis in some European nations, notably Greece and Portugal.

In various indicators, growth in the domestic economy is on track, buoyed particularly by exports and investment. While private consumption remains strong, exports have charted positive growth with potential to surge ahead of forecasts in response to the mounting pace of world economic recovery. Manufactured exports are forging ahead on the back of rising optimism for recovery in advanced economies alongside brisk growth in exports of resource-based commodities, particularly to China and India. The growing optimism for the domestic economic outlook has provided significant boost to investment, reflected in higher imports of raw materials and capital goods.

This improvement in the external sector has had positive impact on the balance of payments. Fast-growing exports have bolstered the current account surplus. At the same time, the high volume of capital inflows in response to growing international investor confidence in the outlook for the Indonesian economy has produced a surplus in the capital and financial account. Responding these developments, international reserves at end-April 2010 reached USD78.6 billion, equivalent to 6.2 months of imports and servicing of official debt. The improvement in the balance of payments has led to significant appreciation in the rupiah alongside reduced volatility. Rupiah gains were also matched by upward movement in exchange rates for almost all countries in the region.

In regard to prices, inflationary pressure was held at modest levels during April 2010. Subdued inflation was reflected in the continued downward trend in core inflation at 3.70% (yoy) in April 2010 compared to 4.43% (yoy) in January 2010, consistent with the appreciation in the rupiah, supply-side response commensurate to rising demand and comfortable level of inflation expectations. Despite a slight increase in volatile foods inflation, low core inflation and administered prices kept overall CPI inflation in April 2010 at a comfortably safe 0.15% (mtm), with the annual rate recorded at 3.91% (yoy).

The financial sector was marked by renewed improvement in the banking intermediary function and continued banking system stability. Credit growth at end-April 2010 reached 14.5% (yoy), in line with forecasts and bank business plans. This is consistent with the growing confidence among economic actors in the improving economic outlook. At the micro level, the banking industry remains in stable condition, reflected in the robust bank capital adequacy ratio (CAR) at 19.1% and safe level of non-performing loans (NPLs) below 5%. Concerning the banking system, Bank Indonesia will continue to monitor and promote improvement in bank efficiency for more optimum operation of the banking intermediation function.

A complete report on the deliberations of the 5 May 2010 Board of Governors Meeting, featuring macroeconomic developments and monetary policy, will be presented in the Monetary Policy Review (MPR) on the Bank Indonesia website (www.bi.go.id/web/id/publikasi).

Jakarta, 5 May 2010
Office of the Governor

Dyah N.K. Makhijani
Director

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