BI Rate Maintained at 5.75% - Bank Sentral Republik Indonesia
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October 19, 2019
No. 14/ 27 /PSHM/Humas

In the Board of Governors' Meeting convened on August 9 2012, Bank Indonesia decided to hold the BI rate steady at 5.75%. The current policy rate is considered consistent with inflation forecast, which is expected to remain low and contained within its target range of 4.5%±1% in 2012 and 2013. From the external side, Bank Indonesia remains vigilant onthe rising current account deficit caused by weaker exports performance as the global economy slowed, amid strong importsin line with robust domestic demand. In that regard, Bank Indonesia will continue to strengthen its policy measures to encourage orderly adjustment in the external balance so that current account deficit will return to its sustainable level. Bank Indonesia will maintain Rupiah stability, consistent with the fundamental condition, to support orderly adjustment in the external balance. In addition, Bank Indonesia will continue to strengthen coordination with the Government in managing domestic demand so that it remains supportive to an effort to maintain macroeconomic stability and sustainable economic growth. With those policy measures, pressure on Balance of Payment is expected to subdue in the second half of 2012.

Board of Governors sees Indonesia’s economy remain solid during global economic slowdown and uncertainty in the global financial market. Indonesia’s economy in the Q2-2012 grew by 6.4%, underpinned by buoyant consumption and investment that spurred strong imports growth. Nonetheless, exports growth slid further, reflecting a slowdown in the global economy and declining global commodity prices. From the production side, economic growth was sustained by three main sectors – (i) manufacturing sector, (ii) trade, hotel, and restaurant sector, and (iii) transportation and communication sector. For the whole year of 2012, Indonesia’s economic growth is expected to arrive at 6.1 – 6.5% and pick up to 6.3 – 6.7% in 2013, supported by underlying strength of private consumption and investment.

From the external side, current account deficit went up in Q2-2012, and is expected to subdue in the second half of 2012. The rising current account deficit was mainly driven by declining exports while imports remained accelerating, particularly on significant increased imports of raw material and capital goods. In addition, capital and financial account posted a soaring surplus, in the form of Foreign Direct Investment, Foreign Portfolio Inflow, and private foreign debt withdrawal. This condition had pointed towards foreign investor’s confidence on Indonesia’s economic prospect and resilience amid global economic uncertainty. In the second half of 2012, current account deficit is expected to decline to a level that will not compromise macroeconomic stability. Some factors underpinning that estimation are better global economy and commodity prices supported by some policies undertaken by Bank Indonesia and Government. In addition, strong growth in investment and imports of capital goods in the recent years are expected to boost domestic economic capacity and reduce Indonesia’s dependence on imports. With that condition,international reserves at the end of July 2012 reached USD106.6 billion, or equivalent to 5.6 months of imports and government’s external debt services.

Rupiah depreciated in July 2012. On point-to-point basis, Rupiah depreciated by 0.56% (mtm) to Rp9,445 per USD, or on average depreciated by 0.29% (mtm) to Rp9,433 per USD. Pressure on Rupiah was associated with Euro crisis and tepid recovery in U.S, as well as slowing growth in China. Pressure on rupiah also came from weaker exports. In that regard, Bank Indonesia will continue to monitor condition in the foreign exchange market to facilitate exchange rate adjustment towards the rate consistent with its fundamental.

Inflation remained benign although slightly went up triggered by seasonal factor (Ramadhan) and shock in food prices. CPI inflation in July 2012 was recorded at 0.70% (mtm) or on an annual basis was recorded at 4.56% (yoy). Rising prices in some food commodities has been observed some weeks prior to Ramadhan as demand and cost of production picked up, as well as limited supply both from domestic and imports. The seasonal factor and shock in food prices, both domestic and international, have pushed up core inflation in July 2012, although remained relatively low (4.28%). Meanwhile, administered prices inflation was relatively benign as there was no change in government policy on the prices of strategic commodities. Going forward, amid risk of shock in food prices, inflation is expected to remain contained and stay within its target range of 4.5% ± 1% in 2012 and 2013.

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 June 2012 that reached 25.8% (yoy). Investment credit recorded a high growth of 29.1% (yoy), and is expected to boost economic capacity. Meanwhile, working capital credit and consumption credit grew by 28.2% (yoy) and 19.6% (yoy), respectively.

Going forward, Board of Governors will continue to focus on measures to maintain external balance and contain inflation. In this regard, Bank Indonesia will continue to strengthen the existing monetary and macroprudential policy mix. BI rate policy response is continued to be directed to control fundamental inflationary pressure, in line with macroeconomic outlook. In addition, Bank Indonesia will continue to strengthen monetary operation and macroprudential policy, including maintaining adequate liquidity and promoting financial deepening. In addition, coordination with government to maintain macroeconomic stability will also be strengthened.

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

Jakarta, 9th August 2012
OFFICE OF THE GOVERNOR

Dody Budi Waluyo
Executive Director

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