Board of Governor Decreased BI Rate to 6,00% - Bank Sentral Republik Indonesia
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October 25, 2020

No. 13/37/PSHM/Humas

In the Board of Governors' Meeting convened on 10 November 2011, Bank Indonesia decided to decrease BI Rate by 50 bps to 6.00%. The decision to decrease BI Rate has been taken in line with the decreasing trend in inflation pressures and also as Bank Indonesia efforts to narrow the interest rate term structure. This decision is also intended to reduce the impacts of worsening global economic prospect on Indonesian economy. Production and consumption indicators in developed countries continue to show a slowing down while global financial markets remain volatile albeit there was a rebound. Meanwhile, domestic financial markets have been more stable accompanied by positive market sentiment in line with various measures undertaken by Bank Indonesia and the Government. Going forward, Board of Governors continues to be vigilant on the uncertainty in the global economy due to debt and fiscal problems in Euro area and the US. Board of Governors will consistently make adjustment on interest rate response and other monetary and macroprudential policy mix to maintain macroeconomic stability and mitigate the potential decline in the domestic economic performance without jeopardizing the priority to keep inflation within its target, that is, 5±1% in 2011 and 4.5%±1% in 2012.

Board of Governors views that Indonesian economic growth remains strong although concern on the prospect of global economy continues.The economic growth in Q3/2011 reached 6.5%, bolstered by strong exports and consumption. This indicates that the impacts of global economic slowdown on domestic economy remain limited. In Q4/2011, the economic growth is potentially higher than the growth in the previous quarter, supported by strong household consumption and exports, as well as the increase in Government expenditure in line with its historical record. The prospect of strong household consumption is supported by improving consumers’ purchasing power and optimism. Meanwhile, export growth is projected to remain strong. Overall in 2011, economic growth is forecasted to reach 6.5%. By production sector, the growth will be led by manufacturing sector; trade, hotels and restaurant sector; and transportation and communication sector.

Board of Governors observes that domestic financial markets continue to improve. This improving condition is in line with various measures undertaken by Bank Indonesia and the Government in mitigating the impacts of global economic turmoil. This is reflected by the improving performance of stock market and decreasing Government bond yields. Meanwhile, interest rates in inter-bank money markets tend to decrease in line with adequate liquidity. BI Rate adjustment has also been expected to improve the interest rate term structure in any due date tenors.

Indonesia’s balance of payment in Q4/2011 is projected to record a considerable surplus after charted a deficit in the previous quarter. Balance of payment deficit inQ3/2011 was driven more by negative impacts of debt crisis in Euro area that triggred capital outflows from stock markets and government bond. Meanwhile, positive sentiment on the prospect of Indonesian economy and attractive return on investment in Indonesia are predicted to attract more capital inflows to Indonesia that in turn improve capital and financial account in Q4/2011. In addition, foreign debt is also predicted to remain large in line with the realization of private investment and increasing Government expenditure in the fourth quarter. For overall 2011, Indonesia’s balance of payment is projected to continue charting large surplus. Meanwhile, international reserves at the end of October 2011 reached USD 114 billion, or equivalent to 6.6 months of imports and external debt services of the Government.

The rupiah exchange rate depreciated moderately with lower volatility. In October 2011, the Rupiah depreciated in average by 1.36% (mtm) to Rp 8,865 per USD. The risk on Euro area and US economic prospects has led investors to adjust their investments that put pressures on exchange rate. In addition, the increase in foreign exchange demand for import payments also put some pressures on the rupiah. Nevertheless, various measures undertaken by Bank Indonesia and Government can contain the pressures on rupiah. 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 pressures continue to decline in line with the decrease in global commodity prices, adequate supply and lower inflation expectation. The CPI in October 2011 recorded deflation by 0.12% (mtm) or 4.42% (yoy), driven by deflation in core and volatile food prices. The deflation in core is, among others, due tothe decrease in global commodity prices, particularly gold. Meanwhile, deflation in food prices is in line with adequate supply supported by improving production, imports, and better distribution. In 2011, inflation is predicted to go towards the lower bound of inflation target in the range of 4%.

Banking system stability is under control with improvement in the banking intermediation despite financial market turmoil as the impact of global economic condition. The stable condition of banking industry is marked by secure level of capital with capital adequacy ratio (CAR) far above the minimum level of 8% and gross non-performing loans (NPLs) managed at comfortably safe level below 5%. Meanwhile, channeling of credits to finance economic activity continues to increase, as reflected by credit growth that reached 25.3% (yoy) at the end of September 2011, investment credit reached 31,1% (yoy), working capital credit reached 24% (yoy) and consumption credit reached 23,8% (yoy). Bank Indonesia continues to maintain banking system stability and boost the improvement of banking intermediation with due regard to the prudential principles such that national economy can reach optimal growth amidst continuing global economic uncertainty.

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

Jakarta, 10 November 2011
Office of the Governor

Difi A. Johansyah
Head of Bureau



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