BI Rate Maintained 5,75% - Bank Sentral Republik Indonesia
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April 18, 2019

No. 14/ 5 /PSHM/Humas

In the Board of Governors' Meeting convened on 8 March 2012, Bank Indonesia decided to keep the BI rate unchanged at 5.75%. Board of Governors views that the current BI rate is still consistent with inflation pressure from the fundamental that is still well managed going forward, and remains conducive to boost economic growth amidst global economic slowdown. Regarding government’s policy on energy, Bank Indonesia predicts that its impact on inflation will be temporary (one-time shock), and inflation will return to decrease in line with economic fundamentals. Accordingly, Bank Indonesia will undertake various measures to anticipate the short-term impacts through strengthening monetary operation on managing short term excess liquidity with continuously maintaining the interest rate policy to be consistent with macroeconomic outlook. Bank Indonesia will also continue to strengthen monetary and macroprudential policy mix, as well as coordination with the government through inflation control team at national level (TPI) and at regional level (TPID) to bring inflation in 2013 towards its range of 4.5%±1%.

Boards of Governors views that domestic economic activity remains strong amidst global economic slowdown and prolonged uncertainty in global financial markets. Economic growth in the first quarter of 2012 is predicted at 6.5% and economic expansion will continue in the second quarter of 2012, although lower than the growth in the first quarter. The economic growth is supported by strong domestic demand, particularly private consumption and investment. Meanwhile, export growth is predicted to slow down due to weakening global economy and the decrease in non-energy commodity prices. The economic growth in the first and second quarter is still in line with the forecast of economic growth for overall 2012, which is 6.3%-6.7%. Balance of risk shows that economic growth tend to be downward bias due to the impact of global economy and government policy regarding energy, if there is no stimulus measures particularly from fiscal policy.

Indonesia’s balance of payments in the first quarter of 2012 is predicted to chart a lower surplus. This is in line with current account deficit in Q1/2012 that is predicted to increase due to slowing exports amidst high imports as domestic economic activity remains strong and fuel consumption remains high. Meanwhile, surplus in capital and financial account decreases due to lower portfolio capital inflows. With that developments, international reserves at the end of February 2012 reached USD112.2 billion, or equivalent to 6.3 months of imports and external debt services of the government.

Rupiah exchange rate is relatively stable although slightly under pressure. In February 2012, on point-to-point Rupiah depreciated by 0.33% (mtm) to Rp 9.020 per USD, but on average it appreciated by 0.69% (mtm) to Rp8.998 per USD. Pressures on Rupiah are emanating from portfolio adjustment by foreign investors due to global sentiment and the increase in imports as domestic economic activity remains strong. To maintain the stability of domestic markets, Bank Indonesia will continue to monitor and undertake measures to stabilize Rupiah exchange rate both through foreign exchange market as well as through Government Bonds in the secondary markets.

Inflation continues in a decreasing trend. CPI inflation in February 2012 was recorded at 3.56% (yoy), lower than inflation in the previous month at 3.65% (yoy). Meanwhile, core inflation remains under control, supported by relatively stable Rupiah exchange rate, adequate supply in responding the increase in demand, controlled inflation expectation, and continued decrease in global commodity prices. The decrease in inflation is driven by deflation in food prices in line with secured food supply, both from domestic production as well as import. On the other hand, administered price inflation is relatively stable as the impact of increase in cigarette excise tax early this year is relatively small. Going forward, government plan regarding fuel subsidy will temporarily lead to the increase in CPI inflation, both through direct effect on administered prices inflation as well as indirect effects on the cost of transportation and other goods. Bank Indonesia is confident that inflation will return to decrease in line with economic fundamentals after the temporary impact of that Government plan ends.

Financial system stability is well-maintained with improving banking intermediation. Banking industry shows solid performance, as indicated by secured level of capital in which capital adequacy ratio (CAR) is well above minimum level 8%, and gross non-performing loan (NPL) below 5%. Meanwhile, banking intermediary also continues to improve, reflected by credit growth in January 2012 that reached 23.7%. Investment credit recorded high growth, 38.1% (yoy), and it is expected to increase economic capacity. Meanwhile, working capital credit and consumption credit grew by 20.2% (yoy) and 20.3% (yoy), respectively.

Going forward, Board of Governors will continue to be vigilant on the impacts of government policy regarding energy and the impacts of global economic slowdown on Indonesian economy. Bank Indonesia will optimize various policies to minimize temporary inflation impacts of government policy regarding fuel subsidy, and controlling inflationary pressure going forward in line with fundamental conditions and the inflation target. In this case, Bank Indonesia will continue to strengthen monetary and macroprudential policy mix that has been implemented. Interest rate policy response will continue to be directed to control inflation pressure from fundamentals based on macroeconomic outlook. To control short-term temporary inflation pressure, the policy will be focused on strengthening monetary operation and managing short term excess liquidity. Besides strengthening policy coordination with the government at national level as well as at regional level through TPI and TPID forums. Although there is a tendency of inflation to go beyond the target due to temporary impact of government policy on fuel subsidy, with various policy implemented by Bank Indonesia and the coordination with the government, Bank Indonesia is confident that inflation in 2013 will return to its range of 4.5% ±1%.

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

Jakarta, 8 March 2012
Public Relation Bureau

Difi A. Johansyah
Head of Bureau

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