BI Rate Maintained at 6,75%, Lower Band of Interest Rate Corridor for Monetary Operation Widened to 150 Bps - Bank Sentral Republik Indonesia
Navigate Up
Sign In
August 21, 2019
No.13/ 30 /PSHM/Humas

In the Board of Governors' Meeting convened on 8 September 2011, Bank Indonesia decided to keep the BI rate unchanged at 6.75%. To stimulate transactions in the money market under the continuing large excess liquidity, Bank Indonesia decided to widen the lower band of interest rate corridor for monetary operations from 100 bps to 150 bps below BI Rate. The decision was taken by considering the importance of maintaining macroeconomic stability amid the heighten uncertainty in the global financial system triggered by the US and Euro area debt. Although the impacts of uncertainty in the global economy on domestic economy are so far limited, Bank Indonesia continues to monitor the developments and assess their impacts on Indonesian economic performance going forward. Against that backdrop, Bank Indonesia will adjust the interest rate response and other monetary and macroprudential policy mix to mitigate the potential slowdown in the domestic economic performance without jeopardizing the priority to keep inflation within the targets, that is, 5%±1% in 2011 and 4.5%±1% in 2012. Bank Indonesia will also strengthen the policy coordination with the Government to better anticipate these impacts of global economic slowdown.

The Board of Governors view that, so far, the performance of domestic economy continues to strengthen amid the increasing concern on the prospect of global economy. The economic growth in Q3/2011 is forecasted to reach 6.6%, bolstered by exports, consumption, and investment. Exports are predicted to keep recording high growth in line with high world trade volume and global commodity prices. Nevertheless, going forward, the slowdown of growth in Euro area and US economies will affect the Indonesian export growth. On the other hand, consumption remains strong in line with consumers’ optimism and the prospect of increase in Government expenditure. Meanwhile, investment is also increasing, supported by the developments of infrastructure projects and Government policies in boosting investment. By economic sector, the growth is projected to be led by trade, hotel & restaurant sector, transportation & communication sector, and manufacturing sector.

Indonesia’s balance of payments in Q3/2011 is forecasted to remain posting a surplus albeit lower than the surplus in Q2/2011. Imports are predicted to continue accelerating due to increasing domestic economic activities, and put higher pressures on current account balance. Nevertheless, the pressures on current account can be compensated by a surplus in capital and financial account due to the continuing large capital inflows, although the inflows experienced temporary pressures emanating from the developments in global financial markets. In line with the development in the balance of payments, international reserves at the end of August, 2011 reached USD 124.6 billion, or equivalent to 7.1 months of imports and external debt services of the Government.

The rupiah exchange rate continue to appreciate albeit at moderate level. In August 2011, the Rupiah appreciated in average by 0.05% to Rp 8,525 per USD with lower volatility, although experienced temporary pressures due to global sentiment triggered by uncertainty of the US and Euro area economic prospects. The strengthening of Rupiah is bolstered by solid fundamental of domestic economy and attractive yield of Rupiah assets. Bank Indonesia is continuously monitoring the developments of Rupiah and ensures the adequacy of Rupiah and foreign exchange liquidity needed to maintain the stability of domestic markets.

Inflationary pressure has been under control. The CPI inflation in August 2011 is recorded at 0.93% (mtm) or 4.79% (yoy). Considering the development going forward, CPI inflation toward the end of 2011 is estimated to be below earlier forecasted. Inflationary pressures in August emanating from core inflation were mainly attributed to higher international commodity prices, particularly gold, and higher seasonal domestic commodity prices such as education costs and airplane fare. Meanwhile, inflation of volatile food prices was under control although domestic demand was higher during Eid holidays. This development is supported by sufficient supply of foods. On the other hand, administered prices experienced only moderate inflation due to the absence of Government policy on the prices of strategic commodities. The outlook of volatile food inflation and administered prices inflation towards the end of 2011 tends to be lower due to the improvement of food supply, including from imports, and oil prices that are inclined to be lower. The outlook of volatile food inflation and administered prices inflation is predicted to rein in inflationary pressures for overall 2011.

Banking stability was well maintained with a steady improvement in banking intermediation. The developments of external sector that affected domestic financial markets, although temporarily, indicate that an open economy requires vigilance as well as anticipative and coordinative policy measures. So far, the stability of banking industry is well maintained, as reflected by capital adequacy ratio (CAR) above the 8% minimum level and non-performing loans (NPLs) gross managed at a comfortably safe level below 5%. Meanwhile, credit disbursement reached at 24.2% (yoy) growth in August 2011, mostly to finance productive economic activities. Bank Indonesia will continue to monitor the credit disbursements to certain sector that are tend to be consumptive. Bank Indonesia will sustain efforts to optimize the intermediation function of the banking sector in bolstering national economic expansion while continuously maintaining the stability of the overall banking system.

Going forward, Bank Indonesia continues to assess the impacts of the global economic slowdown on domestic economy. The Boards of Governors see the continuing slowdown of economic growth in the advanced countries, decelerating world trade volume and global commodity prices. Meanwhile, the large excess liquidity and investor risk perception in the global financial markets will continue to push the capital inflows to emerging economies, including Indonesia, in the forms of FDI as well as portfolio inflows. Overall, these trends in the global economic and financial markets will potentially slowdown the Indonesian economic growth and lower the inflation projections in 2012, while capital inflows and rupiah appreciation are forecasted to continue albeit with higher volatility. Against that backdrop, Bank Indonesia will adjust the interest rate response and other monetary and macroprudential policy mix to mitigate the potential slowdown in the domestic economic performance without jeopardizing the priority to keep inflation within the targets, that is, 5%±1% in 2011 and 4.5%±1% in 2012. Bank Indonesia will also strengthen the policy coordination with the Government to better anticipate these impacts of global economic slowdown.

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

Jakarta, 8 September 2011
Office of Governor

Difi A. Johansyah
Chief of Bureau

Tags:  

Survey

Is this article give you useful information?
Rate this article:
Comment:
Show Left Panel