Senior Deputy Governor of Bank Indonesia (BI), Destry Damayanti, estimates that national economic growth in the second quarter (Q2) 2020 will shrink to the level of 4 - 4.8 percent of total gross domestic product (GDP) compared to last year - Photo by the Central Bank Office

JAKARTA (TheInsiderStories) – Bank Indonesia (BI) again cuts its 7-Days Reverse Repo (BI-7DRR), Deposit Facility interest rate, and Lending Facility Interest rate by 25 bps to 5.25 percent, 4.5 percent, and 6 percent, respectively, the governor told the media today (09/19).

Perry Warjiyo explained, the policy was consistent with inflation forecasts that remained low and investment returns on domestic financial assets that remained attractive. In addition, the decline in the benchmark interest rate is also a pre-emptive step to encourage domestic economic growth.

To encourage economic growth, the central bank also improves the macro-prudential policies by adding a loan component received by the bank, as a component of bank funding sources in the intermediary ratio.

The Bank also relaxed the loan to value (LTV) ratio for property financing by 5 percent, down payment for motorized vehicles in the range of 5 to 10 percent and additional reduction in the LTV ratio for motorized vehicles with environmental insight 5 percent each. This provision effective starting Dec. 2, 2019.

Bank Indonesia also strengthened its monetary operations by implementing a reverse repo of government bond for all tenors from seven days to 12 months. Going forward, BI will continue to implement an accommodative policy mix in line with low inflation forecasts, maintained external stability, and the need to continue to drive economic growth. momentum.

Meanwhile, the decline in the benchmark interest rate is also based on global economic conditions. Warjiyo revealed, the continuing tensions between US and China trade put pressure on the world economy and kept uncertainty about global financial markets high.

The continued increase in trade tariffs by the US and China further reduced the volume of trade and world economic growth. The US economy is slowing down due to falling exports and non-residential investment.

Slowing economic growth in Europe, Japan, China and India also continued, influenced by the decline in exports and then have an impact on the decline in domestic demand. The slowing world economy has pushed global oil and commodity prices back down, which then results in low inflationary pressures.

This condition was responded to many countries by carrying out fiscal stimulus and loosening monetary policy. Meanwhile, the uncertainty of global financial markets has driven a shift in the placement of global funds to assets that are considered safe such as US and Japanese government bonds, and gold commodities.

Warjiyo explained BI needs to concern the dynamics of the global economy because they can influence the economic growth and inflows of foreign capital. In domestic economy, Indonesia has faced the impact of global economy uncertainty.

Exports are not expected to improve due to global demand and declining commodity prices, although some manufactured export products, such as motor vehicles, continue to grow positively. This condition has a negative impact on investment growth, especially non-construction investment, while the growth of construction investment is quite well driven by the development of national strategic projects. Private consumption grew also limited, although household consumption grew steadily supported by the distribution of government social assistance.

Therefore, BI will continue the policy mix so, the government can still achieve economic growth in the range of 5-5.4 percent in 2019 and the range of 5.1-5.5 percent in 2020 .

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