BI Rate Maintained at 6,0% - Bank Sentral Republik Indonesia
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April 19, 2019
No. 13/43/PSHM/Humas

In the Board of Governors’ Meeting convened on December 8th, 2011, Bank Indonesia decided to keep BI Rate unchanged at 6.0%. This decision is based on overall assessment on recent economic condition, risk factors, and economic prospects. Board of Governors views that current BI Rate is still consistent with inflation targets, and remains conducive for financial stability and mitigating the impacts of worsening global economic outlook on Indonesian economy. The assessment on economic condition and outlook show that domestic economy remains strong and stable. Going forward, Board of Governors continues to monitor closely the risks of worsening global economy as well as to maintain macroeconomic and financial stability, and to stimulate domestic economy. Board of Governors affirms that the implementation of monetary and countercyclical macro-prudential policy mix is a necessary in managing the economy and keep inflation within its targets, that is, 4.5%±1% for 2012 and 2013.

Board of Governors noted that the global economy in 2011 slows down, mainly due to uncertainty in economic and financial recovery in Euro area and the US. The escalation of crisis in Euro area, particularly in the second half of 2011, triggered larger volatility in global financial markets. With slowing down in global demand, world trade volume and international commodity prices started to decline. Looking at global inflation, the pressures of inflation in advanced economies increases while the pressures in emerging economies are relatively moderate albeit remain at relatively high level. In line with that developments, emerging market tend to implement neutral or slightly accommodative monetary policy, while advanced economies continue to implement accommodative monetary policy by loosening liquidity.

From domestic side, Board of Governors view that Indonesian economy in 2011 is quite strong. Such an achievement is supported by well-maintained macroeconomic and financial system stability. Economic growth in Q4/2011 is forecasted to reach 6.5%, so that economic growth for overall 2011 is predicted to reach 6.5%. This growth level is supported by remained strong domestic demand and exports performance. Based on production sectors, this strong economic growth is led by manufacturing sector, transportation and communication sector, as well as trade, hotel and restaurant sector.

Indonesia’s balance of payments in 2011 is predicted to continue charting a considerable surplus although it faces pressures in the second half of the year. The pressure is mainly experienced by capital and financial account due to higher uncertainty in the global financial markets and economy. In line with that development, international reserves at the end of November 2011 reached USD111.3 billion, or equivalent to 6.4 months of imports and external debt services of the Government. Meanwhile, Rupiah exchange rate during 2011 appreciates despite there is depreciation pressures in the second half of the year due to worsening market sentiments related to global financial market turmoil. Various measures implemented by Bank Indonesia and the Government are managed to contain the pressures on Rupiah. The trend of Rupiah exchange rate in 2011 is still consistent with the trend of other currencies in the region. Bank Indonesia is continuously monitoring the development of Rupiah exchange rate and maintaining its stability and fundamentals.

Domestic inflation in 2011 continues to decrease. CPI inflation in November 2011 is recorded at 0.34% (mtm), or 4.15 (yoy). The decrease in inflation during 2011 is driven by correction in volatile food prices and the absence of inflationary pressures from administered prices, while core inflation remains moderate. Key factors to the low volatile food prices inflation is adequate supply of foods from domestic production as well as imports. Although the inflation of rice prices is relatively high, the prices of spices such as onions and peppers as well as in the prices of meat experience large correction. Meanwhile, the subdued of core inflation is helped by large correction in international commodity prices, stable rupiah exchange rate, and improving inflation expectation. If the decreasing inflation trend continues, CPI inflation for overall 2011 is expected to be lower than 4.0%.

Banking system stability remains under control with improving banking intermediation although there was turmoil in financial markets due to global markets turmoil. Banking industry remain strong, as indicated by secure level of capital with capital adequacy ratio (CAR) well above the minimum level 8%, and gross non-performing loan (NPL) below 5%. Meanwhile, credit growth until October 2011 reached 25.7% (yoy), in which investment credit, working capital credit, and consumption grew by 31.1% (yoy), 24.7% (yoy), and 23.8% (yoy), respectively. With such developments, credit growth in 2011 is predicted to be in line with Banks’ Business Plan.

Going forward, global economic growth is predicted to slowdown in line with high uncertainty in the resolution of debt and fiscal problems in Euro area and the US. This slowing down in global economy is predicted to affect domestic economic growth. For 2012, domestic economy growth is predicted to slightly decelerate to 6.3%-6.7%. This deceleration is predicted to be driven by lower exports performance due to global economic slowdown and the decrease in international commodity prices. Nevertheless, further slowdown is restrained by the increase in domestic demand, among others, as a result of lower BI Rate. In 2013, economic growth is predicted to accelerate to 6.4%-6.8% in line with the improving global economy. Regarding domestic inflation, Board of Governors predicted that inflation in 2012 and 2013 can be controlled towards its target, that is, 4,5%±1%. Nevertheless, Board of Governors remains vigilant on the risks of Indonesia’s macroeconomic stability, including the risks of worsening global economy. In line with this condition, besides continuing on monetary and financial system stability by ensuring the adequacy of Rupiah and foreign exchange liquidity, Bank Indonesia also optimize the momentum on lower interest rate for economic stimulus effectiveness. In addition, strengthening the coordination between Bank Indonesia and the Government for fiscal and real sector economic stimulus purpose is needed.

A complete result of the December 2011 Board of Governors’ Meeting, presenting macroeconomic developments, monetary policy and the outlook for 2012-2013 will be published in the Monetary Policy Report (MPR).

Jakarta, 8 December 2011
Office of the Governor

Difi A. Johansyah
Head of Bureau

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