Starting today, Bank Indonesia (BI) held a board of governors meeting to take monetary policy in June - Photo by Bank Indonesia

JAKARTA (TheInsiderStories) – Indonesia’ balance of payments (BoP) recorded a surplus of US$2.4 billion in in the first quarter (1Q) of 2019, the central bank reported today. This inline with the larger capital and financial account surplus of $10.1 billion and the current account deficit (CAD) of $7 billion  or 2.6 percent of gross domestic products (GDP).

Bank Indonesia (BI) expects the 2019 current account deficit to be lower than 2018, which is in the range of 2.5-3.0 percent of GDP, although not as low as the initial forecast. The Bank said, that in April, the trade balance had a deficit of $2.5 billion in line with the global economic slowdown, in addition to seasonal factors.

“Meanwhile, foreign capital inflows continued in April, mainly supported by portfolio investment inflows,” said BI’ Governor Perry Warjiyo at his office.

Furthermore the central bank reported that the position of foreign exchange reserves at the end of April was recorded at $124.3 billion, equivalent to 7.0 months of imports or 6.8 months of imports and government foreign debt payments, and above international standards of around 3 months of imports.

The decline in global economic growth and lower commodity prices has resulted in a decline in Indonesia’ export growth, which has subsequently affected household consumption and slowing non-construction investment. Overall, Bank Indonesia predicts Indonesia’ 2019 economic growth to be at the midpoint of the range 5.0-5.4 percent.

Statistic Indonesia has announced that the country’ economic growth in the first quarter (1Q) of 2019 only grew 5.07 percent compared from the previous year, lower than the previous quarter of 5.18 percent but higher than 1Q 2018 at 5.06 percent.

Going forward, BI seeks to boost domestic demand in terms of investment, especially the private sector, needs to be increased to mitigate the negative impact of the lack of recovery in export performance due to the global economic slowdown.

The Bank will also take a policy mix with the Government and related authorities to maintain the momentum of economic growth. One of them, BI held a 7-Day Reverse Repo Rate at 6.00 percent, a Deposit Facility interest rate of 5.25 percent, and a Lending Facility interest rate of 6.75 percent.

The decision was in line with efforts to maintain the external stability of the Indonesian economy amid uncertainty over the increasing global financial market.

Meanwhile, financial system stability was maintained, accompanied by a well-functioning intermediation function and controlled credit risk. The banking capital adequacy ratio in March 2019 remained high at 23.3 percent and accompanied by a ratio of non-performing loans which remained low at 2.5 percent (gross) or 1.2 percent (net).

Banking liquidity is maintained, among others reflected in the ratio of Liquid Equipment to Third Party Funds  of 21.1 percent in March 2019. The performance of corporations going public remains well supported by the ability to pay maintained.

Going forward, Bank Indonesia predicts bank credit to be in the range of 10-12 percent in annual basis while third party funds grow in the range of 8-10 percent.

In addition, April 2019 inflation was under control, sustaining overall economic stability, which was recorded at 0.44 percent (MoM) or 2.83 percent (YoY), although it increased compared to the previous month’s inflation of 0.11 percent (MoM) or 2.48 percent (YoY).

The increase in April 2019 inflation was mainly influenced by the increase in volatile food inflation and administered prices inflation, while core inflation was stable.

Bank Indonesia will remain consistent in maintaining price stability and strengthening policy coordination with the Government, both at the central and regional levels, to ensure inflation remains low and stable which is predicted to be below the midpoint of the 3.5±1 percent inflation target range in 2019.

Bank Indonesia sees a slowdown in world economic growth which has a detrimental effect on trade volume and global commodity prices, unless oil prices have risen in the past period due to geopolitical factors.

The central bank also will keep a close watch on global financial market conditions and the external stability of the Indonesian economy in considering the opening of space for accommodative monetary policy in line with low inflation and the need to encourage domestic economic growth.

BI ensured the availability of liquidity in the banking sector as well as taking accommodative macro-prudential policies, among others by maintaining a Countercyclical Capital Buffer ratio of 0.0 percent, a Macro-prudential Liquidity Buffer ratio of 4.0 percent with a repo flexibility of 4.0 percent, and a range of Macro-prudential Intermediation Ratios at 84-94 percent.

Written by Daniel Deha, Email: daniel@theinsiderstories.com

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