Bank Indonesia Holds BI Rate at 6.5% - Bank Sentral Republik Indonesia
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October 21, 2020

No. 12/54/PSHM/Humas

The Board of Governors’ Meeting convened at Bank Indonesia today decided to hold the BI Rate at 6.5%. This decision is based on a comprehensive evaluation of the recent performance of the economy, the lingering risk factors and the economic outlook. The Board of Governors considers the present level of the BI Rate, is still consistent with achievement of the inflation target and conducive to maintaining financial stability and promoting bank intermediation. Evaluation on the overall performance and outlook of the economy points to improving conditions. Going forward, economic growth is forecasted to accelerate further in 2011 and 2012 with more balances in sources of growth. On the price level, recent rise in inflationary pressure is explained largely by inflation in the volatile foods category, while the level of core inflation is still manageable. In regard to the continuing massive capital inflows and the considerable excess liquidity in the economy, the Board of Governors stresses that the application of a mix of monetary and macroprudential policies are critical to overall macroeconomic management and to keep inflation on track with the targeted range of 5%±1% in 2011 and 4.5%±1% in 2012.

The Board of Governors noted the global economic recovery has been progressing further for this year despite a slower and varying rates accross different parts of the world. Emerging economies have managed to record stronger growth as compared to advanced economies. As the consequences, advanced economies tends to implement loose monetary policies while emerging markets have embarked on monetary tightening. This has led to massive inflows of capital to emerging market economies, including Indonesia. The Board of Governors also maintained a close watch on the developments in Europe and on its impact to limit the influence on the Indonesian economy and financial system.

On the domestic side, the Board of Governors views that the economic recovery has been progressing well during 2010. The economic performance has been bolstered by the sustained macroeconomic stability and sound financial system. Growth in Q4/2010 is expected to forge ahead the preceding quarter, which will bring the growth for the whole year 2010 to 6%. The economic recovery has been driven by the continued strength of household consumption, robust demand for exports and improving investment. On the external segments, the vigorous rate of export growth and capital inflows, on both FDI and portfolio investment, are significantly contributed to higher surplus. Taken together, international reserves by end of November 2010 were recorded at USD 92.759 billion, equivalent to 6.96 months of imports and servicing of official external debt.

In regard to price level, 2010 has been marked by increasing inflationary pressure. In November 2010, Consumer Price Index (CPI) inflation came at 0.6% (mtm) or 6.3% (yoy) in annual terms. The relatively high rate of inflation was mainly driven by volatile foods in response to the limited supply for food commodities, including rice and spices, following the onset of the dry season. In view of these developments, CPI inflation at end of 2010 is predicted to slightly reach above the targeting range of 5±1%. Nevertheless, core inflation maintained at a subdued level of 4.31% in November 2010. So far, inflationary pressure from the external sectors, in part explained by mounting prices for international commodities such as gold and sugar, has been offset by the appreciating trend in the rupiah.

Stability in the banking system is contained alongside steady improvement in credit expansion. The banking industry remains in solid condition as indicated by high capital adequacy ratio (CAR) and subdued ratio of gross non-performing loans (NPLs) at below 5%. Bank intermediation has also improved further, as reflected in 21.8% (yoy) credit growth rate at end-November 2010. Working capital credit has charted accelerated growth and the future direction of credit expansion will continue to target productive sectors. In response to these developments, credit growth for 2010 overall is forecasted to reach 22%-24%, as envisaged in bank business plans. Credit expansion will be driven by improved confidence in the outlook.

Going forward, projections point to further improvement in the domestic economy. In 2011, the economic growth is predicted to accelerate in the range of 6.0%-6.5%, while in 2012 the economy is expected to reach 6.1%-6.6% growth rate. The economic growth will be supported by the robust household consumption, improving investment and solid export performance on the back of the sustained growth in trading partner nations, led by Asia. On the price level, the Board of Governors projected inflation in 2011 to remain on track with the inflation target, set at 5%±1% for 2011 and 4.5%±1% for 2012. Nevertheless, the Board of Governors stays vigilant on various risks to the achievement of inflation target and macroeconomic outlook, such as the tendency for more rapid growth in demand as compared to supply, mounting international commodity prices and the possibility of disruption in production and distribution of staple goods. To this end, Bank Indonesia will emphasize in implementing a mix of monetary and macroprudential policies to curb this inflation risk and the impact of massive capital inflows and excess domestic liquidity. Among the measures which are being prepared by Bank Indonesia will resort on measures to mitigate negative impact of capital inflows as well as to strengthen banking system resilience, are the regulation on foreign curency statutory reserves and vostro accounts (rupiah demand deposit accounts held by non-residents in domestic banks). On top of those measures, the policy coordination with the Government at both central and regional levels would continue to be strengthened.

A complete account of the deliberations of the December 2010 Board of Governors’ Meeting, presenting macroeconomic developments, monetary policy and the outlook for 2010-2012, is presented in the Monetary Policy Report (MPR).

Jakarta, 03 December 2010
Office of the Governor

Difi A. Johansyah
Bureau Chief



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