Bank Indonesia Holds BI Rate at 6.5%
Bank Indonesia decided on August 15th to hold the BI Rate steady at 6.5 percent and will strengthen its policy mix by optimizing an array of monetary and macroprudential instruments to curb inflation and maintain a more sustainable balance of payments, as well as financial system stability overall.
8/15/2013 1:22:28 PM
Excerpt by the statement of Bank Indonesia:
Exports, although growing positively, remain insufficient to bolster economic growth as a result of persistently weak global economic demand. Lukewarm exports, coupled with weaker purchasing power due to rising inflation, have slowed household consumption and non-construction investment. In the future, the risks of an economic downturn remains high. Holistically, Bank Indonesia projects economic growth in 2013 to decelerate to the lower limits in the range of 5.8 percent-6.2 percent and in 2014 in the range of 6.4 percent-6.8 percent.
Externally, pressures on the national economy is ongoing. The Balance of Payments in Quarter II 2013 improved on the previous period, despite running an ongoing deficit.
Looking forward, Bank Indonesia expects the downward rupiah trend, which is still consistent with its fundamental conditions, to support efforts to expedite external rebalancing as well as to catalyse healthier economic growth.
Looking ahead, inflationary pressures are presently expected to ease after the holy fasting month of Ramadan and the start of the new academic year, as well as due to slower domestic economic growth. Bank Indonesia believes that a downward inflation rate trend in the future will ensure that headline inflation in 2014 returns to the target corridor of 4.5 percent ±1 percent.
Bank Indonesia will issue Bank Indonesia Deposit Certificate (SDBI) and improve LDR-Reserve Requirements provisions to strengthen lending and prudent fund raising as well as secondary reserve requirement for banks to bolster liquidity management. Second, rupiah long-term exchange rate stabilization will be conducted in line with its economic fundamentals to maintain a more sustainable balance of payments. Third, BI will conduct supervisory actions to control a still relatively high credit growth in several banks and spesific sectors, including those with high import contents. Fourth, BI will improve several policies to develop the domestic foreign exchange market and to effectively increase forex supply. This includes the policy on underlying of foreign exchange transactions, derivative transactions and short term external debt in banking industry.