Bank Indonesia : BI Rate Maintained at 5.75%

Title	BI Rate Maintained at 5.75%
Data Source	Public Relation Group	Date	10-01-2013	Hits	64
Contact	Public Relation Group, E-mail: [e-mail], Phone: [phone]; Fax.: [phone]
Attachment

No. 15/1/PSHM/Humas

In the Board of Governors' Meeting convened on January 10, 2013, Bank Indonesia decided to hold the BI-Rate at 5.75%. The current policy rate is considered consistent with its target range of 4.5%±1% in 2013 and 2014. Comprehensive assessments to the performance in 2012 as well as prospects for 2013-2014 confirm that the Indonesia economic growth continues to be robust with inflation under control and low. This favorable performance reflect the result of a number of policies adopted by Bank Indonesia in close coordination with the Government for maintaining the macro-economic stability and economic growth momentum against the backdrop of global economic slowdown. Bank Indonesia focuses its current policy directed toward managing external balance and exchange rate stability consistent with its fundamental. Going forward, Bank Indonesia will strengthen its monetary and macroprudential policy mix and policy coordination with the Government to manage domestic demand to be consistent with the objectives of managing external stability, achievement of the inflation target, and maintaining sustainable economic growth.

Global economy recorded lower growth in 2012 compared to the previous year. The slowdown is particularly evidenced in the Euro area which is experiencing recession due to the prolonged debt crisis. Meanwhile, the U.S economy is showing some improvements, but remains fragile and shadowed by concerns over fiscal cliff. Growths in emerging economies are also starting to slowdown, including in China and India as Indonesia's main trading partners. Sluggish global economic growth has been accompanied by a sharp fall in commodity prices. Inflation pressures, especially in advanced countries, show some moderation and lead to a more accomodative stance in these countries. Going forward, global economic growth is forecasted to improve in 2013 and 2014 and some rebound is expected for the global commodity prices as well.

The Indonesian economy recorded a robust growth of 6.3% in 2012 and is forecasted to even higher in 2013 and 2014. The economic resilience has been supported by the overall macroeconomic and financial system stability as well as the strength of domestic demand. Increasing household consumption and investment has been able to withstand the impact of the decline in export growth, especially from the second half of 2012. On the production side, the sources of economic growth come from manufacturing sector, the trade, hotels and restaurants sector, and transport and communications sector. From the regional side, the gap of economic growth between regions is narrowing, as evidenced by increasing contribution of growth from the eastern part of Indonesia. For 2013-2014, Indonesia's economy is forecasted to reach 6.3%-6.8% and 6.7%-7.2% range, respectively. The growth will continue to be underpinned by buoyant private consumptions and strong investment, as well as some improvements in exports performance.

The Indonesia's overall balance of payments recorded a surplus in year 2012, despite continuing pressures on current account deficit. Weakening demand from main trading partner countries and falling global commodity prices have impacted declining export performance. Meanwhile, imports continue to be strong, in particular in the form of capital goods and raw materials, in line with the increasing investment activity. Strong imports are also recorded in oil commodities due to large increase in domestic fuel consumption, resulting in the widening deficits of the oil and natural gas trade balance and increasing pressures on the current account deficit. Capital and financial account recorded a significant increase in the surplus primarily supported by inflows in foreign direct investment and portfolio investments, both in the stock market and the bond market, that much higher compared to the previous year. As a result, international reserves at the end of December 2012 stood at 112,78 billion US dollars, equivalent to 6.1 months of merchandise imports and Government external debt services. Going forward, Bank Indonesia will continue to monitor the development of current account deficit and, through close policy coordination with the Government, make sure that the deficit is narrowing towards its sustainable level to maintain the external stability.

Rupiah exchange rate depreciated through out 2012 with low volatility. On point-to-point basis, Rupiah depreciated by 5,91% (yoy) in 2012 to Rp 9.638 per US dollar. The depreciation pressures mainly occurred in the second and third quarter of 2012, triggered by uncertainty in the global economy especially in the Europe area that result in the declining portfolio inflows to Indonesia. From the domestic side, the pressures on Rupiah were induced by high foreign exchange demands for imports against the slowdown in the export performance. In the Q4-2012, the depreciation pressures have subdued and Rupiah has stabilized, along with the increased capital inflows both in the forms of portfolio and foreign direct investment. Going forward, Bank Indonesia will continue to maintain the stability of Rupiah exchange rate consistent with its economic fundamentals.

Inflation in 2012 remained well under control at a low level within the target range of 4.5%+1%. as The low inflation is result of a number of Bank Indonesia's policy and supported by close coordination with the Government both at the central and local. Inflation at the end of 2012 reached 4.30% (yoy) driven mainly by stable core inflation as well as well-managed volatile food and administered prices inflations. Core inflation has been stable, resulted from the implementation of monetary and macroprudential policy mix geared toward managing the inflation pressures from the demand side, imported inflation as well as inflation expectation. At the same time, inflation pressures from volatile foods were also well-contained, supported by increasingly intensive coordination between Bank Indonesia and the Government through the inflation coordination teams (TPI and TPID), especially on efforts to increase production, smooth distribution, and the stabilization of food prices. Going forward, Bank Indonesia is confident that inflation will remain well under control in the target range of 4.5%+1% in 2013 and 2014.

Financial system stability is well-maintained with intermediation function remains supportive to economic activities. Banking industry shows solid performance, as indicated by high capital adequacy ratio (CAR) at 17,4% and low gross non-performing loan (NPL) at around 2% in November 2012. Credit growth reached 22.3% (yoy) in November 2012, and estimated to be about 23% at the end of 2012. In line with the increased investment, investment credit recorded a high growth of 29.8% (yoy) while working capital credit grew by 26.1% (yoy), and is expected to boost further Indonesia's economic capacity. Consumption credit grew by 12.1% (yoy), affected by the implementation of the ratio of LTV (loan to value) and the minimum down payment policies which were issued to maintain a healthy loan growth in the consumer sector. Looking ahead, Bank Indonesia believes that financial stability will be maintained with improvement in the banking intermediary function in line with better Indonesia's economic performance.

Going forward, Bank Indonesia's policy will be directed to manage domestic demand in line with the efforts to maintain the external balance in the economy. Bank Indonesia will continue to strengthen its policy mix over the five pillars policies. Firstly, the interest rate policy will be consistently determined to make sure that forecasts of inflation ahead fall within the inflation target range. Secondly, the exchange rate policy will be directed to maintain the Rupiah stability consistent with its fundamental. Thirdly, the macroprudensial policy is directed to maintain the stability of the financial system and support the internal and external balances. Fourthly, strengthen the communication strategy to manage inflation expectations. Fifthly, strengthen policy coordination between Bank Indonesia and Government in support of macroeconomic management, particularly in strengthening the economic structure, source of financing of the economy, supply-side response, as well as the crisis management protocol.

A complete report of the January Board of Governors' Meeting, presenting macroeconomic developments and monetary policy will be published in the Monetary Policy Review (MPR). This publication is accessible through Bank Indonesia's website. Meanwhile, the quarterly regional economy development can be seen in the summary of the Regional Economic Report.

Jakarta, 10th January 2013
Office of the Governor

Dody Budi Waluyo
Executive Director