BI Rate Mantained 5,75% - Bank Sentral Republik Indonesia
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May 27, 2019
No.14/11/DSPHM/Humas

In the Board of Governors' Meeting convened on 10 May 2012, Bank Indonesia decided to hold the BI rate steady at 5.75%. Inflationary pressure going forward is expected to remain contained, as can be seen in Bank Indonesia’s Price Monitoring Survey as of 2nd week of May 2012, that shows lower inflation compare to its historical average. In addition, inflation expectation is still considered relatively high and Rupiah tend to weaken, resulted from global economic uncertainty. In that regard, Bank Indonesia is going to raise interest rate of monetary operation instrument and continue to absorb rupiah excess liquidity to contain short term inflationary pressure and provide support for Rupiah stabilization. Medium - long term interest rate structure is expected to pick up, therefore make investment in domestic securities more attractive. By continuously strengthening monetary and macroprudential policy mix, as well as policy coordination with the government through national and regional inflation control teams, Bank Indonesia is confident that inflation in 2012 and 2013 can be controlled towards the target range of 4.5%±1%.

Board of Governors views that Indonesia’s economic growth remains strong amid global economic slowdown. In the first quarter of 2012, Indonesian economy grew by 6.3%, lower than Bank Indonesia estimates. However, economic growth remain strong, supported by strong private consumption and investment. However, exports growth slowed, as global demand weakened. From the production side, the economic growth remained driven by three main sectors, namely manufacturing sector, trade, hotel, and restaurants sector, as well as transportation and telecommunication sector. Going forward, domestic demand is expected to remain strong and support Indonesia’s economic growth. Private consumption is expected to chart high growth, on the back of rising middle class population and relatively high disposable income. Investment growth is also expected to remain high responding to the need to increase production capacity to meet higher demand. For the whole year, economic growth in 2012 is expected to arrive at 6.3 – 6.7%.

Although Indonesia’s Balance of Payment experienced pressure, higher foreign capital inflow will provide support for Indonesia’s Balance of Payment surplus in 2012. In the first quarter of 2012, capital and financial account posted a surplus of USD 2.2 billion, supported by foreign direct investment and portfolio investment. However, current account balance during the first quarter of 2012 posted a deficit of USD 2.9 billion triggered by high imports growth, mainly for oil and gas, amid slowing exports growth. Going forward, Indonesia’s Balance of Payment is expected to perform better, supported by lower current account deficit and better capital inflow, both in the form of direct investment and portfolio. Meanwhile, international reserves at the end of April 2012 reached USD116.4 billion, or equivalent to 6.4 months of imports and government’s external debt services.

In April 2012, Rupiah tends to weaken with reduced volatility. On point-to-point basis Rupiah depreciated by 0.51% (mtm) to Rp9,191 per USD, or on average depreciated by 0.27% (mtm) to Rp9,166 per USD. Pressure on rupiah was associated with high imports, in line with strong domestic economic activities, as well as global economic uncertainty. In the foreign exchange market, Bank Indonesia will continue to monitor and take necessary action to reduce excessive volatility. Going forward, Rupiah is expected to remain stable and tend to appreciate supported by surplus in Indonesia’s Balance of Payment.

Inflation in April 2012, picked up, driven mainly by volatile food inflation, while core inflation remained in check. CPI inflation in April 2012 was recorded at 0.21% (mtm) or 4.5% (yoy), higher than the inflation in the previous month. Higher food inflation was caused by a supply side, both from domestic production and imports. Meanwhile, administered prices inflation was relatively low as there was no change in government policy on the prices of strategic commodities. On the other hand, core inflation was also contained (4.2%, yoy), supported by adequate supply side response to higher domestic demand, lower global commodity prices, and improved inflation expectation. Inflationary pressure going forward is expected to remain contained, as can be seen in Bank Indonesia’s Price Monitoring Survey as of 2nd week of May 2012, that shows lower inflation compare to its historical average.

Financial system stability is well-maintained with improving intermediation function to support economic financing. Banking industry shows solid performance, as indicated by secured level of capital in which capital adequacy ratio (CAR) is well above minimum level of 8%, and gross non-performing loan (NPL) below 5%. Meanwhile, banking intermediary also continues to improve, reflected by credit growth in March 2012 that reached 24.9% (yoy) and LDR of 80.2%. Investment credit and working capital credit recorded high growth of 30.1% (yoy) and 25.9% respectively, and is expected to increase economic capacity. Meanwhile, consumption credit grew by 20.5% (yoy), respectively.

Going forward, Board of Governors will continue to focus on managing short term inflation and Rupiah stability. In that regard, Bank Indonesia is going to raise interest rate of monetary operation instrument and continue to absorb rupiah excess liquidity to contain short term inflationary pressure and provide support for Rupiah stabilization. Medium - long term interest rate structure is expected to pick up, therefore make investment in domestic securities more attractive. In addition, coordination with central and local government will be strengthened, through national inflation control team (TPI) and regional inflation control team (TPID). In this regard, Bank Indonesia, in coordination with Coordinating Ministry for Economic Affairs and Ministry of Home Affairs, is going to hold “3rd TPID National Coordination Meeting” and will be attended by all governors and stakeholders. This meeting is aimed to enhance coordination to maintain price stability.

A complete report of the May 2012 Board of Governors’ Meeting, presenting macroeconomic developments and monetary policy will be published in the Monetary Policy Report (MPR) and accessible through Bank Indonesia’s website.

Jakarta, 10 May 2012
Office of Governor

Dody Budi Waluyo
Executive Director

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