BI Rate Maintained at 6,75% - Bank Sentral Republik Indonesia
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April 18, 2019

No. 13/ 21/PSHM/Humas

In the Board of Governors' Meeting convened on 12 July 2011, Bank Indonesia decided to keep the BI rate unchanged at 6.75%. Bank Indonesia views that the current BI Rate level is still in line with the effort to maintain stronger economic activities supported by stability, amid domestic excess liquidity and continued large capital inflows. Going forward, Bank Indonesia will closely monitor risks on macroeconomic stability, particularly emanating from capital inflows and global commodity prices. Meanwhile, inflation is estimated to be under control and could be lower than earlier forecasted if there is no Government policies regarding energy prices while the supply and distribution of basic foods are well maintained. Bank Indonesia will continue to implement the policy mix of monetary and macroprudential measures, with focus on managing domestic liquidity, capital inflows, and exchange rate appreciation that is in line with the trend of exchange rate appreciation in the Asian region. Bank Indonesia is strongly confident that the implementation of this monetary and macroprudential policy mix can secure macroeconomic stability and keep inflation within the targets, that is, 5%±1% in 2011 and 4,5%±1% in 2012.

Board of Governors view that global economic recovery continues, reflected by the increase in the world trade volume. Nevertheless, the prospect of global economy is facing a number of risks such as Greek debt crisis, unwinding of Quantitative Easing (QE) II by the Fed, and slowing down in Chinese economy. These risks could potentially lower global economic growth in 2011, while the global economic recovery will be stronger in 2012. Meanwhile, global commodity prices remain high although there was a correction in oil prices. In general, global inflation is also increasing, although inflationary pressure in emerging markets decreases. Monetary policy stance in emerging markets are still in tight bias while monetary policy stance in advanced countries remain accommodative.

On the domestic side, Board of Governors forecasts Indonesia’s economic growth to reach 6,3%-6,8% in 2011 and 6,4%-6,9% in 2012. This stronger growth performance has been bolstered by a more balanced sources of growth, with continuously improved investment performance and solid exports. Meanwhile, the growth of household consumption also remain strong. In Q3/2011, the economic growth is forecasted to reach 6,6%, bolstered by consumption and investment. At the sectoral level, all economic sectors are projected to record satisfactory growth, led by transportation and communication sector; the trade, hotels and restaurant sector; and manufacturing sector.

Indonesia’s balance of payment is expected to post another considerable surplus in 2011. This surplus is in line with strong capital inflows, including in the form of FDI, accompanied by surplus in current account albeit at declining trend. The decrease in the current account surplus is due to a rise in imports as domestic demand increases and import prices remains relatively high, particularly oil and gas prices. In capital and financial account, strong capital inflows is expected to continue due to increasing investment activities and positive perception of investors on Indonesia’s economic fundamentals. In line with that condition, international reserves at the end of June 2011 reached USD 119,7 billion, or equivalent to 6.8 months of imports and external debt services of the Government.

Rupiah exchange rate is projected to remain stable with a tendency to appreciate albeit at moderate level, as a result of continuing capital inflows. In Q2/2011, Rupiah appreciated by 1.53% (ptp) to Rp 8,577 per USD with volatility remained in check. The persistent trend of Rupiah appreciation is in line with Bank Indonesia’s efforts to rein in inflationary pressures, particularly those stemming from imported inflation, with pay due regard to its impact on economic growth. Bank Indonesia is confident that this appreciation is still in line with the trend of exchange rate appreciation in the Asian region, and so far does not put pressure on Indonesia’s export performance.

Inflation pressure until Q2/2011 has been under control. The CPI inflation in Q2/2011 recorded at 0.36% (qtq) so that annually decelerate to 5.54% (yoy), mainly driven by deflation in food prices and modest increase in core inflation. Core inflation recorded at 0.85% (qtq) or 4.63 (yoy), pushed by the increase in global commodity prices and the increase in domestic demand due to the escalation of economic activities. Administered prices experienced only moderate inflation, that is 0.69% (qtq), due to the absence of Government policy on energy prices. Meanwhile, food prices recorded deflation at -1.35% (qtq), in line with the correction in food stuffs prices particularly in April and May 2011. Going forward, inflation is estimated to be under control and could be lower than earlier forecasted if there is no Government policies on energy prices while the supply and distribution of basic foods are well maintained.

Financial stability remained secure, accompanied by steady improvement in the banking intermediation to support economic financing. The stable condition of banking industry is marked by secure level of capital and liquidity, with capital adequacy ratio (CAR) above the minimum level 8% and non-performing loans (NPLs) gross managed at comfortably safe level below 5%. Improvement in banking intermediation is also reflected in rising credit growth that reached 23.4% (yoy) in June 2011. Investment credit growth is the highest that reached 29,0% (yoy) in May 2011. Bank Indonesia is continuously boosting the improvement of banking efficiency so that the intermediation function of banking sector can be optimized while the stability of overall banking system is maintained.

A complete result of the July 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 July 2011

Difi A. Johansyah
Head of Bureau

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