Board governor of Bank Indonesia - Photo by BI Office

JAKARTA (TheInsiderStories) – Board governor of Bank Indonesia (BI) decided to maintain a 7 day Reverse Repo Rate (BI 7-DRR) at 6 percent, a Deposit Facility interest rate of 5.25 percent, and a Lending Facility interest rate of 6.75 percent, said the central bank today (02/21).

BI Governor Perry Warjiyo, said the decision is consistent with efforts to strengthen external stability, particularly to control the current account deficit (CAD) within a safe limit and maintain the attractiveness of domestic financial assets. The Bank also continues to pursue a monetary operations strategy to increase the availability of liquidity in driving bank financing.

“Going forward, Bank Indonesia will take an accommodative macroprudential policy and strengthen payment system policies in order to expand economic financing,” he said.

Furthermore, he revealed, the decision was made in regarding to global and domestic conditions. He considered, world economic tends to be slowed, caused by reduced uncertainty in the global financial market. As an example, he said, Untied States (US)  economic growth slowed due to the limited fiscal stimulus, structural problems of the workforce, and the decline in business confidence.

European economic growth also slowed, influenced by continuing economic and financial structural problems, weakening exports and the impact of uncertainty over the settlement of the Brexit problem, added Warjoyo. While, China’ economy slowed on the back of weakening exports due to trade tensions with the US and slowing domestic demand as a result of the ongoing deleveraging process.

In line with the slowing outlook for world economic growth, global commodity prices are predicted to decline, including world oil prices, as well as the normalization of monetary policy in developed countries which tends to not be as stringent as the original estimates and uncertainty in the global financial market is diminishing.

The increase in the Federal Reserves Fund Rate (FFR) interest rate is expected to be lower and the reduction in the central bank balance sheet becomes smaller than planned. Global economic and financial developments on the one hand provide challenges in encouraging exports, but on the other hand increase the inflow of foreign capital to developing countries, including Indonesia.

The momentum of economic growth is maintained, supported by domestic demand. Indonesia’s economic growth remained strong at 5.18 percent in the fourth quarter of 2018, up from the previous quarter’ growth of 5.17 percent.

The growth was mainly supported by domestic demand in line with the increase in household consumption and consumption of Non-Profit Institutions that Serve Households. Investment also remained high due to investor optimism that was maintained against Indonesia’ economic outlook.

Meanwhile, negative net exports were influenced by sluggish global economic growth and declining commodity prices. Spatially, the increase in economic growth is supported by Java and Kalimantan in line with the increase in activities in the agricultural, services and mining sectors.

With this development, Indonesia’s economic growth increased from 5.07 percent in 2017 to 5.17 percent in 2018. Going forward, Bank Indonesia predicts 2019′ economic growth will remain solid in the range of 5.0-5.4 percent, supported by domestic demand, especially household consumption and investment.

Moreover, said Warjiyo, the Rupiah strengthened so that it sustained economic stability. The local currency in the fourth quarter of 2018, on a point to point basis, rose by 3.63 percent compared to the final level of the third quarter of 2018, supported by the balance of payments which recorded a surplus.

The strengthening of the Rupiah continued in January which reached 2.92 percent and continued to occur in February. The trend of the strengthening of the Rupiah at the beginning of 2019 was supported by inflows of foreign capital into the domestic financial market.

Beside, the domestic economic fundamentals stable and continued the attractiveness of domestic financial assets and shield the country from uncertainty in the global financial market. Going forward, BI views the Rupiah will move stably according to the market mechanism.

Moreover, he said, inflation remained under control at a low level and supported the achievement of the 2019 inflation target of 3.5±1 percent. The inflation in January 2019 was recorded at 0.32 percent on monthly basis and 2.82 percent on yearly basis, down from the previous month’ of 0.62 percent and 3.13 percent, respectively.

The decline in inflation stemmed from the decline in volatile food inflation and deflation in the administered prices group. Inflation in volatile foods declined due to deflation in food, so that it was recorded to be lower than the historical average.

The administered prices recorded deflation mainly due to the decline in non-subsidized fuel prices and train fares. Meanwhile, core inflation remained under control, although it increased in line with its seasonal pattern, among others due to increases in house rental rates and wages.

Going forward, Bank Indonesia will continue to consistently maintain price stability and strengthen policy coordination with the government, both at the central and regional levels, to keep inflation low and stable in the target range of 3.5±1 percent, Warjiyo said.

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