Board of Governors of he Bank Indonesia cut the BI 7-Day Reverse Repo Rate by 25 basis points to 4.00 percent, said the governor on Thursday (07/16) - Photo by BI Office

JAKARTA (TheInsiderStories) – Board of Governors of he Bank Indonesia (BI) cut the BI 7-Day Reverse Repo Rate (BI-7DRR) by 25 basis points (bps) to 4.00 percent, said the governor on Thursday (07/16). At the same time, the central bank also cut slices the Deposit Facility interest and Lending Facility rate by same points to 3.25 percent and 4.75 percent, respectively.

The governor, Perry Warjiyo said in a virtual conference, the decision is consistent with inflation forecasts that remain low, maintained external stability and as a further step to encourage the economic recovery amid pandemic. He adds, the policy to stabilize the Rupiah exchange rate according to fundamental values ​​and market mechanisms will continue, amid continuing uncertainty on global financial markets.

To encourage the national economic recovery during the epidemic, BI put more emphasis on strengthening the synergy of monetary expansion by accelerating the government’ fiscal stimulus. In this regard, the Bank is committed to funding the 2020 State Budget through the purchase of state bond from the primary market in a measurable manner, both according to market mechanisms and directly as part of efforts to cover health costs, social protection, and sectoral ministries and local governments to support National Economic Recovery program.

In addition, said Warjiyo, the central bank also shares the burden with the government to accelerate the recovery of micro, small and medium enterprises, and corporations. He assured that, B also continues to strengthen coordination of policy steps with the government and other stakeholders to maintain the macroeconomic and financial system stability.

The governor revealed, the economic growth in the second quarter of 2020 is expected to experience a contraction, with the lowest level recorded in May 2020. This development is influenced by the contraction of the domestic economy in April – May 2020 inline with the impact of the Large-scale social restrictions policy to prevent the spread of the COVID-19 pandemic which reduce economic activity.

The latest developments in June 2020 show that the economy has begun to improve in line with the relaxation of the restriction, although it has not yet returned to pre-COVID-19 levels. Some early indicators of domestic demand show this positive development, as reflected in retail sales, the Purchasing Manager Index, consumer expectations, and various other domestic indicators, which have begun to increase.

The June 2020 export performance of several commodities such as iron and steel also improved along with the increasing demand from China for infrastructure projects. Going forward, the acceleration of domestic economic recovery is expected to improve with the pace of absorption of fiscal stimulus, the success of restructuring credit and corporations, the use of digitalization in economic activities, and the effectiveness of the implementation of the COVID-19 health protocol in the new normal era.

Bank Indonesia, through its policy mix, will continue to strengthen synergies with the Government and related authorities so that various policies pursued will be more effective in encouraging economic recovery, he added.

At the end, Warjiyo explained, the resilience of the external sector of Indonesia’ economy remains good. The current account deficit in the second quarter of 2020 is predicted to remain low due to the improvement in the trade balance in line with the decline in imports due to weak domestic demand.

Data until June 2020 shows that the trade balance in the second quarter of 2020 recorded a surplus of US$2.9 billion, an increase from the previous quarter’ surplus of $2.6 billion.

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