JAKARTA (TheInsiderStories) – Bank Indonesia (BI) decided to maintained a 7-day Reverse Repo (BI 7-DRR) rate at 6 percent, Deposit Facility interest rate of 5.25 percent, and a Lending interest rate Facility of 6.75 percent in the board of governor meeting today (01/17).
The board said, the decision is consistent with efforts to reduce the current account deficit (CAD) to a safe level and maintain the attractiveness of domestic financial assets. The Governor Perry Warjiyo, said that the Bank pursued a monetary operations strategy to maintain adequate liquidity, both in the Rupiah and foreign exchange market, so that it could support monetary and financial system stability.
“Going forward, we will continue to optimize the policy mix and strengthen coordination with the government and related authorities to maintain economic stability and strengthen external resilience, including to control the current account deficit, so that it falls towards the 2.5 percent GDP range in 2019,” he said.
Warjiyo adds, the world economic growth was sloping, but the uncertainty in the financial markets eased slightly. Is estimating United States and China economic growth to slow down. Then, the Federal Reserve’s monetary policy stance is more dovish and is expected the interest rate increasing limited.
Otherwise, Indonesia’ economic growth is estimated to remain strong, supported by domestic demand. Various indicators of economic growth in fourth quarter of 2018 showed that domestic demand remains strong supported by consumption, both private consumption and government consumption.
Private consumption also expected to remain good, along with the maintaining purchasing power and consumer confidence and the positive impact of the general election. Government consumption grew strongly supported by goods shopping and social assistance.
However, Warjiyo stated, exports are predicted to be limited, due to the declining of the global economic growth and declining prices of commodities. At the mean time, Indonesian imports began to decline in line with the policies pursued, although still growing high to meet domestic demand.
Going forward, Bank Indonesia expects in 2019 the domestic economic growth to remain stable around 5.0 – 5.4 percent, supported by sustainability of domestic demand and improved net exports.
Moreover, foreign capital inflows occurred again in December 2018 amounting to US$1.9 billion, and was continued in this month. The position of foreign exchange reserves at the end of December 2018 was quite high at $120.7 billion, or equivalent to financing 6.7 month of imports or 6.5 months of imports and payment of government foreign debt, and is above the international adequacy standard of around three months of imports.
Then, the Rupiah is in a strong trend which supports price stability. In December 2018 the local currency strengthened by an average of 1.16 percent, even though it was slightly weaker by 0.54 percent. The trend of strengthening the Rupiah continued in January 2019.
Warjiyo stated, going forward, the central bank will keep a close watch on the risks of uncertainty in the global financial market while continuing to carry out measures to stabilize the exchange rate in accordance with its fundamental values while continuing to drive market mechanisms and support efforts to develop financial markets.
Inflation remained low and under control so that in 2018 it was within the target range of 3.5±1 percent. CPI inflation in December 2018 was 0.62 percent in month to month period, maintained in line with the year-end seasonal pattern.
Bank Indonesia also will continue to consistently maintain price stability and strengthen policy coordination with the Government, both at the central and regional levels, to ensure inflation remains low and stable, which in 2019 is predicted to be within the inflation target of 3.5±1 percent.
Financial system stability is maintained with a continued good intermediation function and controlled credit risk. From the banking intermediation function, credit growth in November 2018 was recorded at 12.1 percent in annual basis (YoY), lower than the previous month’s growth of 13.3 percent (YoY).
The growth of deposits in November 2018 was 7.2 percent (YoY), a decrease compared to the previous month’s growth of 7.6 percent (YoY). In 2019, BI expects credit growth to be in the range of 10-12 percent (YoY) while growth in deposits is estimated at around 8-10 percent (YoY).
Meanwhile, economic financing through the capital market, issuance of shares (IPO and rights issue), corporate bonds, Medium Term Notes, and Negotiable Certificates of Deposit in November 2018 was recorded at Rp197.1 trillion (US$13.98 billion), down compared to the achievement of the same period in 2017 amounting to Rp276.9 trillion (gross).
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