BI Rate Remains at 6.75% - Bank Sentral Republik Indonesia
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October 29, 2020
No. 13/11/PSHM/Humas

In the Board of Governors' Meeting convened on 12 April 2011, Bank Indonesia decided to hold the BI Rate at 6.75%. This decision does not alter the tight bias stance in Bank Indonesia monetary policy aimed at curbing the continued high inflationary pressure, amid Government measures to ease inflationary pressure from volatile foods. In the opinion of the Board of Governors, rupiah appreciation has been effective in mitigating pressure from imported inflation driven by rising prices for internationally-traded commodities. Furthermore, to minimize the negative impact from short-term capital inflows on monetary and financial system stability, the Board of Governors also decided to replace the one-month holding period for Bank Indonesia Certificates (SBIs) with a six-month holding period, effective from 13 May 2011. Looking forward, Bank Indonesia sees possibility to adjust the BI Rate to curb any further rise in inflationary pressure. Bank Indonesia is confident that this monetary and macroprudential policy mix, with added support from strengthened policy coordination with the Government, will safeguard macro stability and keep inflation on track with the target of 5%±1% in 2011 and 4.5%±1% in 2012.

The Board of Governors envisages further improvement in global economic recovery, as stated in the upward revision of global economic growth projections by various international agencies. This strengthening of global optimism will also bolster growth in volume of world trade with positive impact on demand for exported products, thus contributing to domestic economic growth. However, the global economic recovery remains daunted by risks and uncertainty related to the debt crisis in several European countries and potential disruption in manufacturing output in the aftermath of the earthquake in Japan. In addition, further escalation is projected in world oil and food commodity prices, generating inflationary pressure in many advanced and emerging economies including Indonesia.

On the domestic front, the Board of Governors forecasts Indonesia's economic growth to mount to 6.0%-6.5% in 2011 and 6.1%-6.6% in 2012. This performance will be supported with a more balanced growth structure, with investment forging ahead and continued solid performance in exports. In Q2/2011, the economy is forecasted to grow at a brisk 6.4%. Investment, led by FDI, is expected to take on an enlarged role in building the capacity of the economy in keeping with the continued strength of domestic and external demand and the improved sovereign credit rating. At the sectoral level, high growth is predicted in all economic sectors, led by transportation and communications sector, the trade, hotels and restaurants sector and the construction sector.

Indonesia's balance of payments is expected to post a hefty surplus in 2011. Key to this surplus will come from the current account and the capital and financial account. Exports are forecasted to maintain vigorous growth. Foreign portfolio capital inflows are expected to remain strong, while foreign direct investment (FDI) is on an upward trend. In response to these developments, the international reserves position at end-March 2011 reached USD 105.7 billion, equivalent to 6.3 months of imports and external debt service.

The rupiah charted further appreciation during March 2011. This was consistent with the considerable surplus in the balance of payments and positive foreign investor perceptions of the strength of Indonesia's economic fundamentals. The rupiah gains also partly due to Bank Indonesia policy response in curbing inflationary pressure from imported inflation. By the end of March 2011, the rupiah had strengthened 3.47% (ptp) to Rp 8,708 to the US dollar. So far, rupiah appreciation has not dented Indonesia's competitiveness, as reflected in the sustained high growth of Indonesia's non-oil and gas exports.

Regarding prices, although inflation has embarked on a downward trend, the risk of future inflationary pressures is still estimated to be high. CPI inflation in March 2011 was recorded at 6.65% (yoy) following month-on-month deflation at 0.32% (mtm) in line with a deflation in food commodities. While still high, inflation in the volatile foods category has shown a downward trend in line with Government actions to secure the supply of staple foods . Similarly, administered prices inflation also moderated with the absence of strategic administered price policies. However, core inflation is on an upward trend, reaching 4.45% (yoy) or 0.25% (mtm) in March 2011 as a result of secondary effects from high food prices and mounting inflation expectations. Looking forward, risks of inflationary pressure continue to loom large, stoked by rising international commodity prices, buoyant domestic demand and high inflation expectations. Bank Indonesia will closely monitor the risk of inflationary pressure and reinforce the monetary and macroprudential policy mix to keep inflation on track with the target.

Financial system stability remained secure, accompanied by steady improvement in the banking intermediary function and prudently managed banking liquidity. The stable condition of the banking industry is marked by sound capital and well managed liquidity, with the capital adequacy ratio (CAR) at a tall 18% and non-performing loans (NPLs) gross managed at a comfortably safe level below 5%. Improvement in banking intermediation is also reflected in rising credit growth, recorded in March 2011 at 25.1% (yoy) on the strength of expansion in all categories of lending including credit to MSMEs.

A complete result of the April 2011 Board of Governors’ Meeting, presenting macroeconomic developments, monetary policy and the outlook for 2011-2012, will be published in the Monetary Policy Report (MPR).

Jakarta, 12 April 2011
Office of the Governor

Difi A. Johansyah
Head of Bureau



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