Bank Indonesia decided kept the seven days reverse repo rate at 4 percent at the latest meeting ended today - Photo by TheInsiderStories

JAKARTA (TheInsiderStories) – Bank Indonesia decided kept the seven days reverse repo rate at 4 percent at the latest meeting ended today. The central bank also kept the deposit facility interest and lending facility rate by same points to 3.25 percent and 4.75 percent, respectively.

“This decision was made because we considered the need to maintain the Rupiah due to the low inflation rate,” said the governor, Perry Warjiyo in a virtual conference on Thursday (09/17)

He continued, Indonesia’ external sector resilience in third quarter of 2020 remains strong, amid an adjustment of foreign capital flows into the domestic financial market during September. Current account deficit is forecasted to be lower inline with improving exports and weak domestic demand.

Amid the global uncertainty, he believed Indonesian Rupiah exchange rate could still strengthen due to the prospect of an economic recovery that began to recover in the second semester and other economic data. Liquidity conditions are very adequate.

To encourage the economic recovery from the impact of the pandemic, he emphasized the central bank will support the government to accelerate the realization of the 2020 State Budget. BI also took various steps to stabilize the local exchange rate to be inline with market fundamentals and mechanisms, and to strengthen the monetary operation strategy, in order to increase the transmission of the monetary policy stance pursued.

Then, he said, extending the provision period for the easing of the Rupiah Statutory Reserves by 50 basis points for banks to channeling to micro, small, and medium enterprises (MSME) credit and export-import also non-MSME credit for priority sectors stipulated in the National Economic Recovery program (ERP), from Dec. 31, 2020 to June 30, 2021, encourages the development of money market instruments to support corporate and MSME financing.

Then, continue to expand QRIS acceptance in order to support the ERP and the development of MSMEs through the extension of the Merchant Discount Rate policy of zero percent for Micro Enterprises from Sept. 30, to Dec. 31, 2020. According to him, Bank Indonesia will continue to take the necessary further policy steps to support the ERP by observing the dynamics of the global economy and financial market as well as the spread of COVID-19 and its impact on Indonesia’ economic prospects from time to time.

Warjiyo assesses that the global economy is gradually improving. This development was mainly driven by the improvement of economic growth in China and the United States (US), while Europe, Japan and India still unrecovered. Positive developments in China and the US are in line with the underpinning of the pandemic, which encourages increased mobility of the global community to a new normal equilibrium level and the impact of quite large monetary and fiscal stimuli.

A number of early indicators in August 2020, explained by the governor, indicate a positive outlook for global economic recovery, such as increased mobility, continued expansion of manufacturing and services PMI in the US and China, and increased consumption indicators. He believed, the improving global economy will boost the volume of world trade and global commodity prices in second semester of 2020, which has the potential to be higher than previously estimated.

The continued increase in exports in various countries and the global logistic container index indicate improvement in world trade activity in the third quarter of 2020. On global financial markets, high uncertainty is influenced, among others, by the geopolitical issues of China – US, China – India, and in the United Kingdom. This development had an effect on reducing capital flows to developing countries, except for China, and resulted in continued pressure on currencies in these countries, including Indonesia.

While, the domestic economy, he asserted, is also slowly improving, although its still limited inline with the sloping mobility of society in August 2020. Export performance is improving in line with rising global demand, particularly from the US and China for several commodities such as iron and steel, pulp and waste paper, and crude palm oil.

Then, household consumption improved on a limited basis in line with the continuation of fiscal stimuli such as the distribution of social assistance and the provision of the 13th salary to the state civil service. Several early indicators point to improvement, such as retail sales, the consumer confidence index and the Manufacturing PMI.

He concluded, BI, through its policy mix, will continue to strengthen synergies with the government and related authorities so that the various policies adopted are more effective in promoting economic recovery.

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