The BI Board of Governors agreed on 17th and 18th March 2021 to hold the BI 7-Day Reverse Repo Rate at 3.50%, while also maintaining the Deposit Facility (DF) rates at 2.75% and Lending Facility (LF) rates at 4.25%. The decision is consistent with the need to maintain rupiah exchange rate stability amidst elevated global financial market uncertainty despite projected low inflation.  Reinforcing the national economic recovery, Bank Indonesia is optimising the accommodative macroprudential policy stance, accelerating money market deepening, supporting international policy and digitalising the payment system.  Furthermore, Bank Indonesia has also instituted follow-up policy measures in synergy with Financial System Stability Committee policy, as contained in the Integrated Policy Package to Increase Corporate Financing as follows:

1. Strengthening rupiah exchange rate policy by maintaining market presence through triple intervention policy to preserve exchange rate stability in line with the currency's fundamental value and market mechanisms.
2. Strengthening the monetary operations strategy to bolster the accommodative monetary policy stance.
3. Expanding the use of Bank Indonesia Sukuk (SukBI) for tenors of 1 week to 12 months to strengthen Islamic monetary operations, effective from 16^th April 2021.
4. Strengthening Prime Lending Rate (SBDK) transparency in the banking industry, while coordinating with the Government and other relevant authorities to accelerate monetary policy transmission and stimulate lending to the corporate sector.
5. Strengthening Macroprudential Intermediation Ratio (MIR/Sharia MIR)) policy through the inclusion of export L/C as a financing component, while incrementally introducing regulatory disincentives in the form of MIR related reserve requirement, to stimulate bank lending to the corporate sector and export-oriented businesses, which will accelerate the economic recovery (Appendix 1).
6. Accelerating money market deepening through repo transactions between market players and by strengthening transaction infrastructure to enhance monetary policy transmission effectiveness and financial sector liquidity management.
7. Facilitating trade and investment promotion as well as socialising the use of Local Currency Settlement (LCS) in conjunction with relevant institutions.  In March and April 2021, promotional activities will be organised in Singapore, Malaysia, Japan, United States, Australia, China and France along with LCS socialisation activities in Japan and Malaysia.
8. Supporting development of an inclusive and efficient digital economic and financial ecosystem, targeting SMEs, by expanding the use and features of Quick Response Code Indonesia Standard (QRIS) as well as organising the Indonesia Digital Economy and Finance Festival (FEKDI) and Karya Kreatif Indonesia (KKI) to stimulate economic recovery, encompassing the National BBI Movement to promote pride in Indonesian-made products (GBBI) and the Indonesia Proud of Travelling Movement (GWBI).
9. Supporting the Regional Digitalisation Acceleration and Expansion Teams (TP2DD) to stimulate innovation, accelerate and expand Electronification of Regional Government Transactions (ETP) and integrate the digital economy and finance.

Bank Indonesia will continue to strengthen policy coordination with the Government and Financial System Stability Committee, including implementation of the Integrated Policy Package, to stimulate bank lending to the corporate and priority sectors, which will help catalyse economic growth and national economic recovery.

The global economy is potentially expected to exceed previous growth forecasts despite the ongoing multispeed recovery.  Stronger economic growth is expected in jurisdictions capable of accelerating the Covid-19 vaccination rollout, coupled with large-scale fiscal and monetary stimuli.  Therefore, global economic growth in 2021 is projected to beat the previous forecast at 5.1%, with stronger growth in the United States, China, Europe and India as the main driver.  Several early indicators in February 2021 confirmed upward global economic momentum, including the manufacturing Purchasing Managers Index (PMI), consumer confidence and retail sales.  Consistent with improving global economic performance, world trade volume and international commodity prices are rising, thus supporting exports from developing economies, including Indonesia.  In the United States, the USD1.9 trillion economic relief package that was passed on 17^th March 2021 together with an additional USD2 trillion fiscal stimulus planned for  the fourth quarter of 2021 are supporting higher economic growth.  Market reaction to the larger fiscal policy package and faster economic recovery outlook in the United States has edged up UST yields and global financial market uncertainty despite low expectations of a change in monetary policy stance by the US Federal Reserve this year.  Such developments have influenced capital flows, raised yields and intensified currency pressures in most developing economies, including Indonesia.

At home, domestic economic gains are expected to endure given the global economic recovery, vaccination roll-out and national policy synergy.  Several indicators in February 2021 confirmed ongoing gains despite restrained public mobility due to ongoing restrictions in several regions.  Exports are rising, led by manufacturing products such as iron and steel, metal ore, organic chemicals, as well as electrical machinery, on a stronger demand in Indonesia's main trading partners and global economic recovery.  Spatially, export performance is improving in several regions, namely Sulawesi-Maluku-Papua (Sulampua), Java and Sumatra. In addition, consumer expectations, retail sales and the manufacturing PMI are tracking upward trends.  Government efforts to accelerate the national vaccination program, coupled with the disciplined application of Covid-19 protocols, are expected to accelerate the domestic economic recovery process.  Furthermore, national economic policy synergy is constantly strengthened to further stimulate domestic demand, incorporating five salient aspects as follows: (i) reopening productive and safe sectors; (ii) accelerating fiscal stimuli; (iii) stimulating bank lending on the supply and demand sides; (iv) maintaining monetary and macroprudential stimuli; and (v) accelerating economic and financial digitalisation, particularly in terms of SME development.  Therefore, Bank Indonesia projects national economic growth in 2021 to increase in the 4.3-5.3% range.

Indonesia's Balance of Payments (BOP) remains solid, thereby reinforcing external sector resilience.  The current account deficit is still narrow, supported by an ongoing goods trade surplus.  In February 2021, the trade surplus increased to USD2.00 billion from USD1.96 billion the month earlier, influenced by 8.56% (yoy) export growth on demand from China, United States and Japan, together with rising international commodity prices despite higher imports.  In addition to manufacturing goods, the export value of several primary commodities, such as CPO and coal, are increasing.  Meanwhile, portfolio investment inflows to domestic financial markets are relatively restrained in line with elevated global financial market uncertainty, as reflected by a net outflow of portfolio investment totalling USD1.57 billion in March 2021 (as of 16^th March), after recording a USD7.14 billion net inflow in the January-February 2021 period.  The position of reserve assets at the end of February 2021 stood at USD138.8 billion, equivalent to 10.5 months of imports or 10.0 months of imports and servicing government external debt, which is well above the three-month international adequacy standard.  Moving forward, Bank Indonesia projects a low current account deficit in the 1.0-2.0% of GDP range in 2021, thereby supporting external sector resilience in Indonesia.

Despite increasing global financial market uncertainty, rupiah exchange rates remained relatively stable in line with Bank Indonesia's stabilisation measures.  As of 17^th March 2021, the rupiah depreciated 2.20% on average, or by 1.16% (ptp) on the February 2021 level.  Rupiah depreciation is a corollary of higher US Treasury yields and a stronger US dollar, which stifled foreign capital inflows in the form of portfolio investment to domestic financial markets.  Consequently, the rupiah recorded 2.62% (ytd) depreciation as of 17^th March 2021 against the yearend level in 2020, comparatively lower than several other emerging markets, however, such as Brazil, Mexico, South Korea and Thailand.  Bank Indonesia continues to strengthen exchange rate stabilisation policy in line with the rupiah's fundamental value and market mechanisms through effective monetary operations and adequate market liquidity.

Inflation remains low in line with weak demand and adequate supply.  In February 2021, the Consumer Price Index (CPI), as a measure of headline inflation, stood at 0.10% (mtm) or 1.38% (yoy).  Core inflation is also in low in line with compressed domestic demand, maintained exchange rate stability and consistent Bank Indonesia policy to anchor inflation expectations to the target corridor.  Volatile food inflation decelerated in response to increasing domestic supply and low demand.  Meanwhile, inflationary pressures on administered prices intensified due to higher charges on several toll road sections and higher airfares on some airlines.  Therefore, inflation in 2021 is projected to remain under control within the 3.0%±1% target range.  Bank Indonesia remains firmly committed to maintaining price stability and strengthening policy coordination with the Government through national and regional inflation control teams (TPI and TPI) to control headline inflation within the predetermined target range.

In line with Bank Indonesia's accommodative monetary policy stance and synergy with fiscal policy to stimulate economic recovery, loose liquidity conditions persist in the banking industry and financial markets.  Beginning in 2020, Bank Indonesia has injected liquidity through quantitative easing to the banking industry totalling Rp776.87 trillion (5.03% of GDP), consisting of Rp726.57 trillion in 2020 and Rp50.29 trillion in 2021 (as of 16^th March 2021).  Synergy between monetary expansion and fiscal stimuli has been strengthened through SBN purchases by Bank Indonesia in the primary market.  After making purchases in the primary market totalling Rp473.42 trillion to fund the 2020 State Budget, Bank Indonesia is continuing to purchase SBN in the primary market in 2021 to help fund the 2021 State Budget through mechanisms pursuant to the Joint Decree issued by the Minister of Finance and Governor of Bank Indonesia on 16^th April 2020, which was subsequently extended on 11^th December 2020 until 31^st December 2021.  As of 16^th March 2021, Bank Indonesia has purchased SBN worth Rp65.03 trillion in 2021 in the primary market, including Rp22.90 trillion through primary auction and Rp42.13 trillion through greenshoe options (GSO).  Loose liquidity conditions in February 2021 have edged up the ratio of liquid assets to deposits to 32.86%, accompanied by solid 10.11% (yoy) deposit growth.  In terms of monetary aggregates, M1 and M2 growth remained high in February 2021 at 18.6% (yoy) and 11.3% (yoy) respectively.

Interest rates are coming down in response to a lower policy rate and loose liquidity conditions, although the lag experienced in terms of lower lending rates in the banking industry demands attention.  Loose liquidity coupled with the 150bps reduction to the BI7DRR since 2020 have contributed to a low overnight interbank rate, averaging 2.96% in February 2021.  The interest rate on 1-month term deposits fell 189bps (yoy) to a level of 4.06% from January 2020 to January 2021.  Notwithstanding, lending rates only decreased 78bps during the same period to 9.72%.  Despite a 125bps (yoy) reduction in the BI7DRR as of January 2021, the prime lending rate has only fallen 78bps (yoy), thus widening the spread between the prime lending rate and BI7DRR from 5.82% in January 2020 to 6.28% in January 2021.  On the other hand, deposit rates have responded more quickly to the lower policy rate, bringing the spread between the prime lending rate and 1-month term deposit rate to 5.97% form 4.86%. In terms of loan type, prime lending rates on microloans currently average 13.77%, non-housing consumer loans (10.71%), retail loans (9.63%), housing loans consumer (9.61%) and corporate loans (9.16%).  By bank group, the highest prime lending rate in January 2021 was recorded at state-owned banks totalling 10.80%, followed by regional development banks (9.79%), national private commercial banks (9.46%) and foreign bank branches (6.58%).  Nonetheless, prime lending rates at state-owned banks are expected to decrease in March 2021 in line with the planned reduction already announced.  Bank Indonesia is urging the banking industry to continue lowering lending rates expeditiously as part of the joint efforts to stimulate lending to the business community towards accelerating the national economic recovery.

Financial system resilience remains solid, although the risks associated with Covid-19 transmission on financial system stability continue to demand vigilance.  The Capital Adequacy Ratio (CAR) in the banking industry remained high in January 2021 at 24.40%, accompanied by persistently low NPL ratios of 3.17% (gross) and 1.03% (nett).  Despite loose liquidity conditions, the intermediation function of the financial sector remains weak, as reflected by a 2.15% (yoy) credit contraction recorded in February 2021 compared with 1.92% (yoy) credit contraction in January 2021.  In response, several measures are rigorously strengthened through policy synergy with the Financial System Stability Committee, banking industry and business community to maintain optimism and overcome the supply and demand-side constraints impeding bank lending to the business community and to stimulate national economic recovery momentum.  Consistent with such policy synergy, Bank Indonesia has maintained an accommodative macroprudential policy stance, including the previously announced downpayment requirements on automotive loans/financing and loan/financing-to-value (LTV/FTV) ratio on property loans/financing.  Bank Indonesia will also encourage bank lending to businesses, while maintaining financial system stability by expanding the financing components and incrementally reactivating the Macroprudential Intermediation Ratio (MIR).

Cash and non-cash payment system transactions are increasing in line with rapid economic and financial digitalisation.   In February 2021, currency in circulation grew 11.95% (yoy) to reach Rp783.6 trillion. Transaction value using ATM cards, debit cards and credit cards stood at Rp579.6 trillion, shrinking 4.93% (yoy) in February 2021 due to limited mobility and weak domestic demand compressed by the Covid-19 pandemic.  On the other hand, digital economy and finance transactions maintained solid growth in line with greater public acceptance and growing public preference towards online shopping, a surge of digital payments and acceleration of digital banking.  Therefore, the value of electronic money transactions stood at Rp19.2 trillion in February 2021, expanding 26.42% (yoy). Similarly, in terms of digital banking, transaction volume and value growth remained robust at 36.41% (yoy) and 22.94% (yoy) to reach 464.8 million transactions and Rp2,547.5 trillion respectively.  Bank Indonesia expects the digitalisation trend to accelerate, driven by rapid technological development, innovation as well as digital ecosystem expansion and strengthening.  On the payment system policy side, Bank Indonesia continues to support development of the digital economy and finance ecosystem by expanding QRIS acceptance through implementation of the Customer Presented Mode (CPM) feature and using QRIS payments for e-commerce. Strengthening rupiah use as the only legal tender in the territory of the Republic of Indonesia, Bank Indonesia continues to bolster public education through several programs, namely Cinta Rupiah, Bangga Rupiah and Paham Rupiah, meaning to love the rupiah, be proud of the rupiah and understand the rupiah.

Jakarta, 18^th March 2021

Head of Communication Department=

Erwin Haryono

Executive Director

Information about Bank Indonesia

Tel. 021-131, Email: bicara@bi.go.id