Bank Indonesia

04/20/2021 | News release | Distributed by Public on 04/20/2021 04:38

BI 7-Day Reverse Repo Rate Held at 3.50% Synergy Maintaining Stability, Strengthening Economic Recovery

No. 23/105/DKom

The BI Board of Governors Meeting agreed on 19th and 20th April 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 persistently elevated global financial market uncertainty despite projected low inflation. Supporting the national economic recovery effort, Bank Indonesia has optimised its accommodative monetary and macroprudential policy mix and accelerated payment system digitalisation 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 sharia monetary operations, effective from 16th April 2021.

4. Maintaining accommodative macroprudential policy by holding the countercyclical capital buffer (CCyB) at 0%, the Macroprudential Liquidity Buffer (MPLB) at 6% with repo flexibility at 6%, as well as the Sharia Macroprudential Liquidity Buffer at 4.5% with repo flexibility also at 4.5%.

5. Strengthening Prime Lending Rate (SBDK) transparency in the banking industry (Appendix), while coordinating with the Government and other relevant authorities to: (i) accelerate monetary policy transmission to lending rates in the banking industry; and (ii) stimulate lending/financing to the corporate sector.

6. Extending the National Clearing System (SKNBI) pricing policy of Rp1 from Bank Indonesia to banks and a maximum of Rp2,900 from banks to customers from 30th June 2021 previously until 31st December 2021 to accelerate national economic recovery momentum.

7. Strengthening QRIS policy to accelerate inclusive and efficient economic and financial digitalisation by:

  1. Raising the QRIS transaction limit from Rp2 million to Rp5 million, effective from 1st May 2021; and
  2. Lowering the Merchant Discount Rate (MDR) for Public Services Agencies (BLU) and Public Service Obligations (PSO) from 0.7% to 0.4%, effective from 1st June 2021.

8. Safeguarding the security, reliability and uninterrupted availability of payment system and rupiah currency management services during the Ramadan and Eid-ul-Fitr 1442 H festive period.

9. Facilitating trade and investment promotion as well as socialising the use of Local Currency Settlement (LCS) in conjunction with relevant institutions. In April and May 2021, promotional activities will be organised in Japan, Singapore, US, China, France and UK.

The measures outlined above, particularly points 4, 5, 7 and 9, are part of Bank Indonesia's ongoing commitment to policy synergy with the Financial System Stability Committee. Bank Indonesia will also 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 expected to surpass previous growth forecasts despite the ongoing multispeed recovery. Such developments stem primarily from economic gains posted in the United States and China as the main drivers of the global recovery. The US economic recovery is gaining momentum in line with the orderly vaccination rollout and additional large-scale fiscal stimuli. In China, stronger economic growth is supported by growing domestic and global demand. Therefore, Bank Indonesia has revised its global economic growth projection for 2021 upwards to 5.7% from 5.1% previously. Stronger global economic recovery momentum was also confirmed by several early indicators in March 2021, including upward trends recorded in terms of the Purchasing Managers Index (PMI), consumer confidence and retail sales in several countries. In response to global economic gains, world trade volume and international commodity prices are also increasing, thus boosting export performance in developing economies, including Indonesia. Meanwhile, elevated financial market uncertainty and UST yield volatility persist in line with faster economic recovery momentum in the US and market perception of the Federal Reserve's policy direction. Such developments have eroded capital inflows and intensified currency pressures in most developing economies, including Indonesia.

At home, domestic economic gains are persisting on the back of stronger export performance and fiscal spending. Exports are expected to continue improving beyond early projections at the beginning of the year on growing demand from Indonesia's main trading partners, China in particular, driven by crude palm oil (CPO), metal ore, pulp and wastepaper, motor vehicles as well as iron and steel. Spatially, export performance is improving in the Java region along with Sulawesi-Maluku-Papua (Sulampua). Fiscal stimuli in the form of social aid program (bansos) disbursements, procurement and capital spending have also increased beyond previous forecasts. Meanwhile, consumer expectations and retail sales in March 2021 point to subdued private consumption gains in line with public mobility restrictions amidst government efforts to accelerate the national vaccination program. Therefore, Bank Indonesia projects national economic growth for 2021 in the 4.1-5.1% range. Moving forward, domestic economic recovery momentum is expected to build in response to stronger exports, ongoing fiscal stimuli and increasing investment, as signalled by the upward manufacturing PMI trend. Orderly implementation of the vaccination program, coupled with the disciplined application of Covid-19 protocols, remain a prerequisite for a faster domestic demand recovery.

Indonesia's Balance of Payments (BOP) remains solid, thereby reinforcing external sector resilience. A narrow current account deficit is expected in the first quarter of 2021, supported by a maintained trade surplus of USD5.52 billion after posting an USD8.27 billion surplus in the previous period. The trade surplus was primarily underpinned by demand in China, US and Japan, together with higher international commodity prices. Several primary commodities recorded increases in terms of export value, such as CPO and metal ore, as well as manufacturing commodities, including iron and steel, organic chemicals and motor vehicles. Meanwhile, the capital account is expected to maintain a surplus in response to capital inflows in the form of foreign direct investment (FDI) and portfolio investment. Portfolio investment recorded a net inflow totalling USD5.43 billion in the first quarter of 2021. The position of reserve assets at the end of March 2021 stood at USD137.1 billion, equivalent to 10.1 months of imports or 9.7 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, thus supporting external sector resilience in Indonesia. In addition, various measures to reinforce external resilience are being taken through implementation of the Job Creation Act to attract foreign capital inflows in the form of FDI and portfolio investment, while maintaining the attractiveness of domestic financial assets for investment.

In line with Bank Indonesia stabilisation measures, rupiah exchange rates remain relatively stable, despite persistently elevated global financial market uncertainty.As of 19th April 2021, the rupiah depreciated 1.16% on average, or by 0.15% (ptp) on the March 2021 level. Rupiah depreciation is consistent with persistently high global financial market uncertainty that has restrained foreign capital inflows in the form of portfolio investment to domestic financial markets. As of 19th April 2021, therefore, the rupiah recorded 3.42% (ytd) depreciation against the yearend level in 2020, which is comparatively lower than several other emerging markets, however, such as Brazil, Turkey 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 March 2021, the Consumer Price Index (CPI), as a measure of headline inflation, stood at 0.08% (mtm) or 1.37% (yoy). Core inflation is also low in line with compressed domestic demand, maintained exchange rate stability and consistent Bank Indonesia policy to anchor inflation expectations to the target corridor. Inclement weather has edged up volatile food inflation yet remains under control. Inflationary pressures on administered prices are also mild in response to unchanged toll road charges and airfares. Therefore, inflation in 2021 is projected to remain under control within the 3.0%±1% target range. Bank Indonesia is still firmly committed to maintaining price stability and strengthening policy coordination with the Government through national and regional inflation control teams (TPI and TPID) to control headline inflation within the predetermined target range. Such coordination with the Government is currently focused on controlling inflationary pressures during the holy fasting month of Ramadan and Eid-ul-Fitr festive period 1442 H.

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 Rp798.85 trillion (5.18% of GDP), consisting of Rp726.57 trillion in 2020 and Rp72.27 trillion in 2021 (as of 16th April 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 16th April 2020, which was subsequently extended on 11th December 2020 until 31st December 2021. As of 16th April 2021, Bank Indonesia has purchased SBN worth Rp101.91 trillion in 2021 in the primary market, including Rp28.33 trillion through primary auction and Rp73.58 trillion through greenshoe options (GSO). Loose liquidity conditions in March 2021 have increased the ratio of liquid assets to deposits to 33.58%, accompanied by solid 9.20% (yoy) deposit growth. In terms of monetary aggregates, M1 and M2 growth remained high in March 2021 at 10.8% (yoy) and 6.9% (yoy) respectively.

Interest rates are coming down in response to a lower policy rate and loose liquidity conditions. In the money market, loose liquidity and BI7DRR reductions totalling 150 basis points since 2020 have contributed to a low overnight interbank rate, averaging 2.79% in March 2021. The banking industry responded to interest rate transparency policy by reducing the prime lending rate 171bps in February 2021, led by state-owned banks that implemented a 266bps (yoy) reduction to 8.70%. The banking industry has lowered prime lending rates across all loan types, dominated by microloans at 346bps (yoy) which nevertheless recorded the highest prime lending rate at 12.72%. Meanwhile, lending rates on housing consumer loans, non-housing consumer loans, corporate loans and retail loans have been reduced by 194bps, 193bps, 139bps and 136bps (yoy) respectively to 8.19%, 9.25%, 8.26% and 8.84%. Industrywide, prime lending rates have been reduced across all components, namely the cost of loanable funds by 120bps (yoy), followed by the overhead cost (OHC) by 31bps (yoy) and profit margin by 21bps (yoy). State-owned banks and foreign bank branches reduced their profit margins by 88bps (yoy) and 34bps (yoy) respectively, contrasting national private commercial banks and regional government banks, where profit margins increased by 48bps (yoy) and 2bps (yoy) respectively in February 2021.

Financial system resilience is still solid, although further opportunities to stimulate the bank intermediation function remain. The Capital Adequacy Ratio (CAR) in the banking industry was high in February 2021 at 24.52%, accompanied by persistently low NPL ratios of 3.21% (gross) and 1.04% (nett). Despite loose liquidity conditions, the intermediation function of the financial sector remains weak, as reflected by a 4.13% (yoy) credit contraction recorded in March 2021. In response, several measures are rigorously strengthened through policy synergy between the authorities, banking industry and business community to maintain optimism and overcome the supply and demand-side constraints impeding bank lending to the business community. To that end, Bank Indonesia has maintained an accommodative macroprudential policy stance by holding the CCyB at 0%, the Macroprudential Liquidity Buffer (MPLB) at 6% with repo flexibility at 6%, as well as the Sharia Macroprudential Liquidity Buffer at 4.5% with repo flexibility also at 4.5%. In addition, Bank Indonesia has also strengthened prime lending rate transparency in the banking industry and maintained coordination with the Government and other relevant authorities to accelerate monetary policy transmission to bank lending rates and catalyse lending/financing to the business community.

Cash and non-cash payment system transactions are increasing in line with rapid economic and financial digitalisation. In March 2021, currency in circulation grew 7.61% (yoy) to reach Rp782.7 trillion. Transaction value using ATM cards, debit cards and credit cards stood at Rp668.7 trillion, expanding 9.58% (yoy) in March 2021 due to increasing economic activity. 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 Rp21.4 trillion in March 2021, expanding 42.46% (yoy). Similarly, in terms of digital banking, transaction volume and value growth remained robust at 42.47% (yoy) and 26.44% (yoy) to reach 553.6 million transactions and Rp3,025.6 trillion respectively. Considering greater public acceptance, increasing public preference and the faster digitalisation trend, technological development, innovation and expansion of the digital ecosystem, Bank Indonesia continues to accelerate digitalisation of an inclusive and efficient digital economy and finance through payment system policy by expanding QRIS features, amongst others. Bank Indonesia is also strengthening QRIS socialisation and education activities on the supply and demand sides. In preparation for Eid-ul-Fitr, Bank Indonesia is safeguarding the operational preparedness, availability, security and reliability of the payment systems operated by Bank Indonesia and payment system service providers, while encouraging use of fast, affordable, secure and reliable cashless transactions. In addition, Bank Indonesia is also expanding cash services, particularly currency exchange services in the banking industry, and providing public education services concerning the rupiah, specifically during the holy fasting month, to accelerate the Cinta, Bangga and Paham Rupiah programs, meaning to love the rupiah, be proud of the rupiah and understand the rupiah.

Jakarta, 20th April 2021

Head of Communication Department

Erwin Haryono

Executive Director

Information about Bank Indonesia

Tel. 021-131, Email: [email protected]