Indonesia's Foreign Capital Inflows US$6.3B in 1Q 2019
Governor of Bank Indonesia Perry Warjiyo. Photo by TheInsiderStories.

JAKARTA (TheInsiderStories)Bank Indonesia through the Board of Governors’ Meeting decided to maintain a 7-day Reverse Repo Rate (BI7DRR) at 6 percent by considering global and domestic economic conditions, said Governor of BI Perry Warjiyo in Jakarta, on Thursday (4/25).

Warjiyo explained, in terms of the global economy, the US economy grew slowly due to the decline in business income, limited fiscal stimulus. Similarly, China’s economy is still slowing, despite fiscal expansion through tax cuts and infrastructure development.

Improvements in the European economy are predicted to be slower due to weaker exports and unfinished financial sector problems and continued structural challenges related to the condition of the aging population.

Likewise, economic improvements in Latin American and Middle Eastern countries are lower than expected. In line with the slowdown in the world economy, trading volume and global commodity prices declined, except for oil prices that rose in the past period due to geopolitical factors.

While, within the country, the current account deficit is expected to decline with a higher capital and financial account surplus. BI will continue to strengthen exports and tourism performance to reduce the current account deficit at the level of 2.5 percent of GDP.

In terms of exchange rates, Warjiyo revealed, the rupiah would move stably with a maintained market mechanism.

BI also sees inflation in a downward trend so that it is expected to reach the target of 3.5 percent plus minus 1 percent by the end of 2019. “To maintain inflation, coordination is also strengthened ahead of fasting and Ramadhan,” he said.

Economic growth this year is also expected to grow positively in the range of 5-5.4 percent. BI will carry out a policy mix with authorities to support this.

Loan growth this year is expected to be in the upper limit of the range of 10-12 percent this year. Whereas until February 2019 it has reached 12.1 percent year on year (yoy).

In boosting domestic demand, BI also issued an accommodative policy in the form of increasing availability of liquidity, encouraging retail payment efficiency, encouraging supply of transactions for Domestic Non Deliverable Forward (DNDF), encouraging the implementation of market operators, developing the commercial securities market and encouraging expansion of electronification.

On the other hand, LPEM FEB University of Indonesia considers that BI still needs to hold its benchmark interest rate. This is in line with the downward trend in the inflation rate, the rupiah exchange rate which shows a strengthening trend in the after and after elections and the current account deficit which is expected to continue to improve.

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