BI Rate Steady at 6.50% - Bank Sentral Republik Indonesia
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October 20, 2019
No. 12/25/PSHM/Humas

In the Board of Governors' Meeting convened on 3 June 2010, Bank Indonesia resolved to hold the BI Rate at the level of 6.50%. This decision follows a comprehensive evaluation of the latest developments and outlook for the economy, which is showing steady overall improvement. The Board of Governors believes that the BI Rate at this level is on track with achievement of the 5%±1% inflation target for 2010 and 2011 and is conducive to measures for bolstering the economic recovery process. The decision is also consistent with actions to safeguard domestic financial stability amid escalating risks of uncertainty from the debt crisis now besetting Greece and a number of other European nations.

The Board of Governors notes that the global economic recovery process is moving forward despite the crisis in Europe. In the advanced economies of the United States, Japan and Asia's emerging markets, led by China and India, economic recovery is gaining momentum. No indications so far suggest that the European debt crisis has dented the buoyant outlook for global economic recovery. Similarly, the domestic economy has sustained only limited impact due to the robust condition of Indonesia's economic fundamentals. The upbeat conditions and improving outlook for the global economy have benefited Indonesia's exports, which maintained brisk growth during the first four months of 2010 with export performance approaching pre-2008 crisis levels.

Improvement in the domestic economy is visible across a range of indicators. While private consumption maintains brisk growth, exports have mounted steadily on the performance of manufactured exports in response to improvement in global economic conditions, led by advanced economies. Strengthen domestic and external demand is stimulating renewed growth in investment, reflected in rapidly growing imports of raw materials and capital goods. With support from investment as well as consumption and exports, the domestic economy is now in an expansionary stage of the cycle.

Indonesia's balance of payments recorded another surplus despite the heightened risks on global financial markets. The current account posted a sizeable surplus with exports ahead of imports. However, the capital and financial account surplus narrowed slightly due to portfolio capital outflows triggered by negative sentiment on global financial markets in response to the Greek debt crisis, in addition to Indonesia's official external debt servicing obligations. As a result, international reserves at 31 May 2010 are recorded at 74.6 billion US dollars, equivalent to 5.87 months of imports and servicing of official external debt.

Prices held steady with inflationary pressure during May 2010 at subdued levels. May inflation in the consumer price index (CPI) reached 0.29% (mtm) or 4.16% (yoy), ahead of the 0.15% (mtm) or 3.91% (yoy) level recorded one month earlier. Prices increases in May were driven mainly by inflation in volatile foods (rice and miscellaneous seasonings) following disruptions in supply and distribution. In contrast, inflationary pressure from administered prices remains low. Similarly, only modest pressure was recorded in core inflation, which has maintained a downward trend since early 2009. Accordingly, the Board of Governors predicts that inflation for the years of 2010 and 2011 will remain within the targeting range, set at 5%±1%.

Key factors in the financial sector are the continued stability in the banking system and improvement in the banking intermediation function. In the opinion of the Board of Governors, banking system stability in Indonesia is sufficiently robust to anticipate contagion from the debt crisis in Europe. This is borne out in the high capital adequacy ratio (CAR) for the banking system, reported in the most recent data at 19.2%, in addition to the comfortably safe level of non-performing loans (NPLs) gross at less than 5%. Improvement in the bank intermediation function is reflected in the 17.6% (yoy) credit growth recorded at end-May 2010. At this level, credit growth remains within the bounds of the planned lending set out in the Bank Business Plans and is consistent with the growing confidence of economic actors in the improving economic outlook.

A complete report on the deliberations of the 3 June 2010 Board of Governors’ Meeting, including macroeconomic developments and monetary policy, is presented in the Monetary Policy Review (MPR) on the Bank Indonesia website (www.bi.go.id/web/id/Publikasi).

Jakarta, 3 June 2010
Directorate of Strategic Planning
and Public Relations

Dyah N.K. Makhijani
Director

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