BI Rate Maintained at 6,50% - Bank Sentral Republik Indonesia
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May 27, 2019

No. 15/ 21 /DKom

In the Board of Governors’ meeting, convened on August 15, 2013, Bank Indonesia decided to hold the BI Rate steady at 6.50%. Bank Indonesia will strengthen its policy mix by optimizing an array of monetary and macroprudential policy instruments to curb inflation and maintain a more sustainable balance of payments, as well as financial system stability overall. First, BI will continue to conduct necessary monetary operations to absorb rupiah excess liquidity that likely tends to increase after Ramadan. In this regard, Bank Indonesia will issue Bank Indonesia Deposit Certificate (SDBI) and improve LDR-Reserve Requirements provisions to strengthen lending and prudent fund raising as well as secondary reserve requirement for banks to bolster liquidity management. Second, rupiah long-term exchange rate stabilization will be conducted in line with its economic fundamentals to maintain a more sustainable balance of payments. Third, BI will conduct supervisory actions to control a still relatively high credit growth in several banks and spesific sectors, including those with high import contents. The reinforcement of macroprudential policy, including the optimalization of LDR-Reserve Requirement and Secondary Reserve Requirement is also aimed to strengthen the banks’ resilience in coping with risks as well as to maintain the financial system stability. Fourth, BI will improve several policies to develop the domestic foreign exchange market and to effectively increase forex supply. This includes the policy on underlying of foreign exchange transactions, derivative transactions and short term external debt in banking industry. BI strongly believes the policy mix will be sufficient to direct the 2014 inflation in line with its inflation target range of 4.5% + 1%, as well as to buttress domestic economy adjustments toward a sound and balanced equilibrium. BI will continuously strengthen its good cooperation and coordination with the government to curb inflation and maintain the balance of payments.

Bank Indonesia will keep careful attention to the global economic growth which shows risks of slowing down, and the high uncertainty in the financial market. The 2013 global economic growth is predicted to be lower than its original projection, from 3.2% to 3.1%. This downwards revision is mostly derived by the slower growth of emerging market countries, especially China and India. In addition, global commodity prices still tend to decline, except for oil price. In the mean time, global financial market shock in July 2013 has subsided. Looking ahead, the issues of tapering off monetary stimulus by the Fed needs to be monitored. The less than stellar global economic condition inclines to negatively affect Indonesia’s economic performance, both through trade and finance.

The economic slowdown from 6.0% (yoy) in Quarter I-2013 to 5.8% (yoy) in the subsequent quarter is part of rebalancing the domestic economy with the global economic downturn and the impact of rising inflation. Exports, although growing positively, remain insufficient to bolster economic growth as a result of persistently weak global economic demand. Lukewarm exports, coupled with weaker purchasing power due to rising inflation, have slowed household consumption and non-construction investment. In the future, the risks of an economic downturn remains high. Holistically, Bank Indonesia projects economic growth in 2013 to decelerate to the lower limits in the range of 5.8%-6.2% and in 2014 in the range of 6.4%-6.8%.

Externally, pressures on the national economy is ongoing. The Balance of Payments in Quarter II 2013 improved on the previous period, despite running an ongoing deficit. Gains in the balance of payments were supported by a significant surplus in the capital and financial account, among others, due to a deluge of foreign direct investment (FDI) and forex bonds issued by the Government. On the other hand, the deficit in the current account escalated, as a result of weak exports stemming from the global economic slowdown and tumbling international commodity prices amid rampant imports in line with seasonal patterns. The current account deficit was also the result of large debt interest repayments in the second quarter of 2013. Foreign exchange reserves at the end of July 2013 totalled US$92.67 billion, equivalent to 5.1 months of imports and servicing foreign debt repayments, which exceed international adequacy standards. Looking ahead, through a tighter monetary and macroprudential policy mix instituted by Bank Indonesia, coupled with close policy coordination with the Government, the balance of payments is projected to rebound on the back of a reduced current account deficit in line with the impact of weaker domestic demand and rupiah exchange rate corrections.

The rupiah exchange rate depreciated in July 2013 congruous with economic fundamentals. On average, the rupiah slid 1.95% (mtm) to a level of Rp10,071 per US dollar compared to the previous month. Concomitantly, in terms of point-to-point, the rupiah depreciated 3.43% and closed at a level of Rp10,278 per US dollar. Bank Indonesia observed that the downward rupiah trend, still consistent with its fundamental conditions, to support efforts to expedite external rebalancing as well as to catalyse healthier economic growth.

CPI inflation soared in July 2013 to 3.29% (mtm) or 8.61% (yoy), well above the rate of inflation in June 2013 and Bank Indonesia projections too. The escalating rate of inflation caused by skyrocketing inflation of volatile foods, while inflation of administered prices as a direct result of subsidised fuel price hikes is in harmony with Bank Indonesia projections. Core inflation, despite a moderate increase, remained under control due to second-round effects that were less intense than their historical average when fuel prices have been raised in the past. Looking ahead, inflationary pressures are presently expected to ease after the holy fasting month of Ramadan and the start of the new academic year, as well as due to slower domestic economic growth. Bank Indonesia believes that a downward inflation rate trend in the future will ensure that headline inflation in 2014 returns to the target corridor of 4.5%±1%.

Financial system stability was well maintained, underpinned by stability in the banking industry. Amid a slowdown in bank credit growth, banking industry resilience remained solid, which was reflected by a capital adequacy ratio (CAR) of 18%, well above the minimum requirement of 8%, coupled with a low ratio of gross non-performing loans (NPL) at just 1.9% in June 2013. The overall banking liquidity is stable, despite a relatively high Loan-to-Deposit Ratio of 87.2% in June 2013. Meanwhile, credit growth slowed from 21.0% in May 2013 to 20.6% (yoy) in June 2013 due to the deleterious effect of weaker economic growth. Bank Indonesia will continue to monitor rapid credit growth at a number of banks and economic sectors, including those with high import contents, that could undermine the performance of the banking industry and unsettle financial system stability.

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

Jakarta, 15 August 2013
Communications Department

Peter Jacobs
Director

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