Indonesia Monetary Policy Unchanged in March


In the Board of Governors' Meeting held on March 7th, 2013, the Bank Indonesia decided to hold the BI-Rate at 5.75%

 

Excerpt from the statement by the Bank Indonesia:

 

The current policy rate is considered consistent with inflation target range of 4.5%±1% in 2013 and 2014. Indonesia's economy is still showing a good performance, even though there are indications of investment activity moderation since Q4-2012.  Going forward, Bank Indonesia will monitor the inflation, mainly inflation that comes from volatile foods. Bank Indonesia is confident that with the strengthening of monetary and macroprudential policy mix, as well as solid coordination with the Government, will be able to achieve the inflation target and promote  external balance in order to  support sustainable economic growth.

 

Indonesia's economy in the Q1-2013 will grow in line with forecasts 6.2%, supported mainly by strong domestic demand. Consumption grows quite strong as consumer confidence and purchasing power improved. Meanwhile, various indicators suggested moderate investment growth, particularly non-construction investment, amid  quite strong construction investment. The indication is also seen on decelerating  imports growth, especially imports of capital goods. On the other hand, exports to  major trading partner countries, especially China,  United States of America (USA) and India, is expected to increase. For the whole of 2013, after taking into account the economic activity in the next quarters, including spending related with the preparation for  General Election  in 2014, economic growth is forecasted toward the lower range of 6.3% -6.8%.

 

On the external side, the current account deficit is expected to decline in the Q1-2013.  Lessen current account deficit is supported by increasing exports in line with improvement in international commodity prices. Meanwhile, non-oil and gas imports are predicted to weaken amid the risk of increasing oil and gas  imports that is need to be wary.

 

In February 2013, the depreciation pressure on rupiah tended to subside so as to achieve an average Rp9.680 per dollar. Compared to the beginning of 2013, the rupiah exchange rate appreciated by 0.31%. Exchange rate stabilization policy adopted by Bank Indonesia, including the strengthening of foreign exchange intervention mechanism and the formation of a reference to the rupiah exchange rate in the domestic market,   increase market confidence.

 

CPI inflation in February 2013 reached 0.75% (mtm) or 5.31% (yoy). Core inflation remained under control at 4.29% (yoy) in line with restrained price of global nonfood commodity and contained depreciation of the rupiah.  On the other side, inflationary pressure was mainly derived from high volatile foods, among others, as the impact of weather disturbances and the limited supply of horticultural commodities from import. Meanwhile, administered price inflation is quite high pushed by electricity rate hike. Inflationary pressure is expected to ease as the harvest cycle and for the whole of 2013 is expected to remain subdued in the target range.

 

The financial system stability and banking intermediation function are properly maintained. A solid banking industry performance is reflected in the high capital adequacy ratio (CAR), which is well above the minimum 8% and the maintained ratio of non-performing loans (NPL) gross below 5%.


Bank Indonesia | Joana Taborda | joana.taborda@tradingeconomics.com
3/7/2013 12:01:33 PM