Pressure on the financial stability system (FSS) is expected to increase as the effects of the COVID-19 pandemic, said Bank Indonesia (BI) in the latest report - Photo by Finance Ministry Office

JAKARTA (TheInsiderStories) – Indonesian financial stability in the third quarter of 2019 remained under control, said the The Financial System Stability Committee (FSSC) on Friday (11/01). It seen from the foreign capital inflows to Indonesia amounting to Rp217.04 trillion (US$15.50 billion) as of Oct 31.

Governor of Bank Indonesia (BI) Perry Warjiyo, revealed the flows of foreign capital into the bond market recorded Rp165.2 trillion, stock market of Rp49.9 trillion, and corporate bonds amounting to Rp2.06 trillion. “This shows that Indonesia’s fundamental is still good,” he said.

While, finance minister Sri Mulyani Indrawati explained, the financial system remained stable even there is high uncertainty in the global economy that was affected by tensions between United States (US) and China. The tension led to a decline in trade volume and slowing of world economic growth followed by weakening commodity prices and inflationary pressures.

She asserted, various countries responded it by loosening monetary policy and providing fiscal stimulus, which then encouraged capital inflows to developing countries, including Indonesia.

From the domestic side, the minister continued, the economic growth still quite good, although the contraction in export performance needs attention because it has an impact on the performance of household consumption and investment. Indrawati optimistic that economic growth in the third quarter (3Q) of 2019 could reach 5.05 percent.

The committee also rated, Indonesia’ balance of payments (BoP) to improve in the 3Q of 2019 and foreign exchange reserves are still far above international adequacy standards. The improved performance of the BoP has an impact on the strengthening Rupiah.

In addition, said the board, inflation was controlled at a low and stable level within the target of 3.5+1 percent. Maintained economic resilience in turn to supports the financial system stability, said the committee.

Then, the financial system stability is supported by maintained banking resilience, adequate liquidity and stable financial markets. It is reflected in low capital adequacy ratio and non-performing loan risk.

Indrawati stated, policy coordination within the committee has a positive impact on financial system stability. In addition, policy synergy also aims to strengthen external resilience through various efforts to increase exports as well as attracting foreign investment.

From the monetary side, BI has strengthened the accommodative policy mix by lowering the BI 7 Days Reverse Repo rate by 100 basis points (bps) from July to October 2019. The central bank also relaxes macro prudential policies by increasing the capacity of bank lending and encouraging loan demand through

In order to boost the momentum of domestic economic growth, the government is increasing the spending and to implement the priority programs so the state budget is able to provide optimal impetus for the economy.

The government has anticipated the potential widening of the fiscal deficit with several funding options such as from excess budget balance, withdrawing cash loans, and issuing government bond.

Responding to the downward trend in deposit rates, chairman of the Indonesian Deposit Insurance Corporation (IDIC) Halim Alamsyah reported, in September 2019 the agency has lowered the guarantee interest rates at commercial banks and rural banks by 25 bps to 6.5 percent and 9 percent for Rupiah, while foreign exchange will be at 2 percent.

IDIC in the last meeting also decided to hold the guarantee interest rates at commercial banks and rural banks for Rupiah and for foreign exchange in commercial banks. It will be implemented from Sep. 26, 2019 until Jan. 24, 2020.

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