Interest Rates Start to Again

No. 24/ 15 /DKom

The BI Board of Governors Coming together agreed on 19th and 20th Jan 2022 to concord the BI 7-Day Contrary Repo Rate at 3.50%, while likewise maintaining the Deposit Facility (DF) rates at two.75% and Lending Facility (LF) rates at four.25%. The decision is consistent with the demand to maintain inflation, exchange charge per unit and financial system stability for economic growth amid a build-upward of external pressure.

Reiterating the statement relayed at the Banking company Indonesia Annual Coming together 2022 held on 24th November 2021, Banking company Indonesia will direct its policy mix in 2022 towards maintaining stability by supporting national economic recovery efforts.  In this case, monetary policy in 2022 will focus on maintaining stability, while macroprudential policy, payment organisation policy, money marketplace deepening as well as an inclusive and green economic system and finance volition be maintained to revive economic growth.  The direction of the BI policy mix in 2022 is as follows:

1. Monetary policy in 2022 volition focus on maintaining stability, while mitigating the global impact of policy normalisation in advanced economies, the US Federal Reserve in item.

1. 1. Strengthening rupiah exchange rate policy to maintain exchange rate stability in line with economical fundamentals and market mechanisms.
   2. Northward ormalising liquidity policy, while safeguarding the cyberbanking manufacture'southward power to extend financing to the corporate sector and buy SBN to fund the State Revenue and Expenditure Budget (APBN) as the ratio of liquid avails to deposits is currently loftier at 35.12%.  Normalisation will be achieved by gradually increasing rupiah reserve requirements for conventional commercial banks from the electric current level of iii.5% as follows:
      1. 150bps increase to 5.0%, with a daily requirement of i.0% and average requirement of 4.0%, effective from one^st March 2022
      2. 100bps increase to 6.0%, with a daily requirement of 1.0% and boilerplate requirement of 5.0%, constructive from 1^st June 202two
      3. 50bps increase to 6.five%, with a daily requirement of 1.0% and average requirement of 5.5%, effective from one^st September 202two
         
   3. Normalising liquidity policy by gradually increasing rupiah reserve requirements for sharia banks and sharia business units from the current level of 3.5% as follows:

1. 1. 1. 50bps increase to 4.0%, with a daily requirement of ane.0% and average requirement of 3.0%, constructive from i^st March 202ii
      2. 50bps increase to iv.v%, with a daily requirement of 1.0% and boilerplate requirement of three.5%, effective from 1^st June 2022
      3. 50bps increase to 5.0%, with a daily requirement of 1.0% and average requirement of 4.0%, effective from 1^st September 202two

1. 4. Providing reserve requirement remuneration of 1.v% for conventional commercial banks, sharia banks and sharia business organisation units coming together the rupiah and average reserve requirements referred to in points b and c.

2. Strengthening the accommodative macroprudential policy stance in 2022 to revive bank lending to the corporate sector and drive the national economic recovery, while maintaining fiscal system stability.

   1. Offer incentives for banks disbursing financing to priority sectors and inclusive financing and/or banks achieving the Macroprudential Inclusive Financing Ratio (RPIM) target in the grade of a 100bps reduction in the daily reserve requirement, effective from i^st March 2022
   2. Strengthening implementation of the Macroprudential Inclusive Financing Ratio (RPIM), primarily through bank commitment to the RPIM target, based on the expertise and business models available.
   3. Maintaining accommodative macroprudential policy by property: (a) the Countercyclical Upper-case letter Buffer (CCyB) at 0%, (b) Macroprudential Intermediation Ratio (MIR) in the 84-94% range with a lower disincentive parameter of 84% from 1^st Jan 2022, and (c) Macroprudential Liquidity Buffer (MPLB) at half dozen% with repo flexibility of six% and the sharia MPLB at 4.five% with repo flexibility of four.v%.
   4. Strengthening prime lending rate (PLR) transparency in the banking manufacture with a focus on involvement rate spread by bank group (Appendix).

3. Accelerating payment system digitalisation to stimulate economic recovery, particularly in terms of household consumption, while advancing an inclusive and efficient economic system and finance by:

   1. Expanding QRIS uptake through: (i) implementation of a strategy to attract 15 million new QRIS users in 2022 via collaboration with the industry, government ministries/agencies and the community, (ii) expansion of QRIS features, (iii) preparation of business models and the technical aspects of cantankerous-border QRIS implementation with Malaysia.
   2. Increasing the number of participants, expanding the services and garnering greater acceptance of BI-FAST for more than efficient transactions between banks and members of the public.
   3. Intensifying the electronification programme through: (i) social aid programme (bansos) digitalisation, (ii) electronification of local government services, particularly the acceleration and expansion of regional digitalisation (P2DD), (iii) integration of different transportation modes.
   4. Safeguarding the availability of quality rupiah currency fit for apportionment throughout the territory of the Republic of Indonesia by strengthening the digitalisation strategy and expanding currency distribution, including the Sovereign Rupiah Expedition Program ( Program Ekspedisi Rupiah Berdaulat ) in outer, frontier and remote (3T) regions, while expanding the Rupiah Love, Pride and Understanding movement ( Cinta Bangga dan Paham (CBP) Rupiah ).

4. Accelerating foreign exchange marketplace deepening to back up rupiah exchange rate stability, while expanding the availability of hedging instruments and promoting international trade and investment.

   1. Implementing regulatory reform of the domestic foreign commutation market, primarily focusing on: (i) relaxing the threshold on spot transactions with an underlying from USD25,000 per month to USD100,000 per calendar month, (ii) developing a non-US dollar reference rate against the rupiah equally a fixing rate for derivative transactions to support hedging activity, (3) standardising the instruments to back up transaction digitalisation through the Electronic Trading Platform (ETP) and Central Counterparty (CCP).
   2. Expanding the use of Local Currency Settlement (LCS) through socialisation activities targeting the banking industry, corporate sector and other potential users in cooperation with relevant institutions during January and February 2022.

5. Strengthening policy for an inclusive and greenish economic system and finance, particularly on the credit demand side, to support a sustainable economical recovery through MSME development and the empowerment of low-income individuals to level up MSMEs and sharia businesses, while strengthening Banking company Indonesia'southward dark-green and institutional policies to support the transition towards a low-carbon economic system.

6. Strengthening international policy past expanding cooperation with other central banks and international organisations, promoting trade and investment and ensuring the success of half dozen priority agendas in the Finance Runway in conjunction with the Ministry of Finance during Republic of indonesia's G20 Presidency in 2022.

Bank Indonesia volition also continue strengthening policy coordination with the Government and Financial Organization Stability Committee to accelerate the vaccination rollout and reopen economic sectors, facilitate financial and monetary coordination likewise as revive lending to the corporate sector and other priority sectors, while maintaining macroeconomic and fiscal system stability and driving the national economical recovery.

The global economic recovery is projected to persist despite the recent surge of Omicron cases, intense inflationary pressures and faster normalisation of monetary policy by several fundamental banks . A more than synchronous recovery is expected, not only in the United States and China yet too in Europe, Japan and India.  Ongoing economic improvements were recently confirmed by several strong indicators released in Dec 2021, including the Purchasing Managers Index (PMI), consumer confidence and retail sales.  Banking company Republic of indonesia projects global economic growth, therefore, at four.four% in 2022.  World trade volume and international commodity prices continue to rise, thus propping up the export outlook in developing economies.  Global financial marketplace uncertainty persists in response to the Fed's recent announcement to advance policy normalisation given the build-upwardly of inflationary pressures in the United states caused by supply chain disruptions and growing demand, coupled with rapid transmission of the Omicron variant of Covid-19.  Such conditions have impeded upper-case letter flows and intensified currency pressures in developing economies, including Indonesia.

Domestic economical growth is forecast to accelerate in 2022 . The latest economic indicators released in December 2022 point to a faster recovery procedure, including public mobility, retail sales and consumer conviction indicators.  Overall, the national economy is projected to grow in the three.2-iv.0% range in 2021, before accelerating to 4.7-5.5% in 2022 on the back of stronger private consumption and investment every bit the Government maintains an expansive fiscal posture and export performance remains solid, despite the always-present risk of increasing Covid-19 cases that continues to demand vigilance.  The growth projections are supported past increasing public mobility given the faster vaccination program rollout, broader reopening of economical sectors and ongoing policy stimuli.  The major economic sectors, namely the manufacturing industry, trade, construction and agriculture, keep to gain momentum.  Spatially, economic improvements are expected in all regions of the archipelago, peculiarly Java, Sumatra, Kalimantan and Balinusra, in line with persistently solid exports, growing domestic need and the major economic sectors in each region.

Republic of indonesia's Balance of Payments (BOP) is projected to remain solid . The BOP surplus in 2022 is expected to surpass the previous year, supported by a electric current account surplus of approximately 0.2% of Gross domestic product and a larger capital and fiscal account surplus.  Inbound 2022, foreign majuscule inflows to domestic financial markets have been maintained, as reflected by a modest net inflow of portfolio investment totalling USD0.2 billion as of eighteen^th January 2022.  Furthermore, the position of reserve avails at the stop of December 2022 was high at USD144.9 billion, equivalent to viii.0 months of imports or 7.viii months of imports and servicing government external debt, which is well above the 3-month international capability standard.  Looking alee, robust BOP operation in 2022 is expected, bolstered by a low and manageable electric current account arrears in the 1.1-one.ix% of Gross domestic product range.  In addition, the upper-case letter and financial business relationship is forecast to record a larger surplus in 2022 than in the previous year, primarily due to foreign majuscule flows in the class of foreign direct investment (FDI) given the contempo improvements to the domestic investment climate.

As a corollary of Banking company Indonesia's stabilisation measures and external sector resilience, rupiah exchange rate movements remain under control despite persistent global financial market dubiety . As of nineteen^th January 2022, the value of the rupiah depreciated past 0.77% (ptp) and 0.01% on average compared with the December 2022 level.  The weaker rupiah stems from muted strange capital letter inflows despite a maintained domestic supply of foreign commutation and the positive perception of investors concerning the promising domestic economical outlook.  Rupiah depreciation is relatively lower, yet, than the lost value experienced in several other emerging economies, namely the Philippines (0.98% ytd) and Russia (2.89% ytd).  Looking alee, the Rupiah commutation rate is expected to be maintained in line with solid economic fundamentals despite continued global financial market place uncertainty.  Furthermore, Depository financial institution Indonesia continues to strengthen rupiah exchange charge per unit stabilisation policy in line with the currency's fundamental value and market mechanisms through effective monetary operations and adequate market liquidity.

Inflation in 2022 was low and contributed to economic stability .  In 2021, the Consumer Price Index (CPI) was recorded at 1.87% (yoy), which is below the 3.0%±1% target despite increasing from i.68% (yoy) in 2020.  Aggrandizement in 2022 was influenced past weak domestic demand compressed by the Covid-19 pandemic, stable exchange rates, anchored aggrandizement expectations, acceptable supply and orderly distribution of foodstuffs equally well as policy synergy between Banking concern Indonesia and the Authorities to maintain price stability.  Looking ahead, Bank Republic of indonesia projects-controlled inflation in 2022 within the 3.0%±1% target corridor in line with sufficient aggregate supply to meet growing aggregate demand, anchored aggrandizement expectations and exchange rate stability, coupled with the optimal policy response instituted past Bank Indonesia and the Regime.  Depository financial institution Indonesia remains firmly committed to maintaining price stability and strengthening policy coordination with the key and regional governments through national and regional inflation control teams (TPI and TPID) to control headline aggrandizement within the target.

Liquidity weather condition are nevertheless loose in line with Banking company Republic of indonesia's accommodative monetary policy stance and the impact of synergy between Banking company Republic of indonesia and the Government to support the national economical recovery . Bank Indonesia has injected liquidity through quantitative easing (QE) to the banking industry totalling Rp147.83 trillion in 2022 and Rp5.93 trillion in 2022 (every bit of 18^th January 2022).  Banking company Indonesia in 2022 purchased SBN to fund the State Revenue and Expenditure Budget (APBN) totalling Rp358.32 trillion, consisting of: (i) Rp143.32 trillion through the primary market in accordance with the Articulation Decree (KB) issued by the Minister of Finance and Governor of Bank Indonesia, which remains effective until 31^st December 2022, and (ii) private placement totalling Rp215 trillion to fund the wellness and humanitarian budgets for Covid-19 pandemic handling in accord with the Joint Decree (KB) issued by the Government minister of Finance and Governor of Bank Indonesia on 23^rd August 2021.  In 2022 (as of xviii^th January 2022), Depository financial institution Indonesia has purchased SBN in the master market totalling Rp2.twenty trillion.  The expansive monetary policy opinion supported loose liquidity weather in the banking industry in December 2021, equally reflected by high ratio of liquid avails to deposits at 35.12% and eolith growth of 12.21% (yoy).  Liquidity in the economy has as well increased, as indicated by narrow (M1) and broad (M2) money supply aggregates, which grew 17.9% (yoy) and xiii.ix% (yoy) in the reporting catamenia.  Bank Indonesia will normalise liquidity policy in 2022, while safeguarding the banking manufacture's ability to extend financing to the corporate sector and purchase SBN to fund the State Revenue and Expenditure Budget (APBN).

A consistently low policy rate and loose liquidity conditions in the banking manufacture have continued to border down lending rates . In the markets, the overnight interbank charge per unit and 1-calendar month deposit rate have fallen 25bps and 131bps since Dec 2022 to two.78% and two.96% in December 2021.  In the credit marketplace, the banking manufacture continues to lower prime lending rates (PLR), accompanied by lower interest rates on new loans across all bank groups.  Increasing economic activity and greater public mobility have improved risk perception in the banking industry, prompting lower interest rates on new loans.  Notwithstanding, significantly smaller reductions in lending rates compared to eolith rates have increased involvement rate spread and internet interest margin (NIM) in the banking industry.  Consequently, Banking company Republic of indonesia acknowledges that the banks' role in lending/financing could be improve, including past  lowering lending rates, to hasten the national  economic recovery.

Financial arrangement resilience is solid, accompanied by a gradual revival of the bank intermediation function . The Upper-case letter Adequacy Ratio (CAR) in the banking industry remained high in Nov 2022 at 25.59%, with persistently depression NPL ratios of iii.nineteen% (gross) and 0.98% (nett).  The banking company intermediation function continues to gain momentum, with five.24% (yoy) credit growth recorded in December 2022 across all loan types, including working uppercase loans, consumer loans and investment loans at vi.32% (yoy), 4.67% (yoy) and iv.01% (yoy) respectively.  Demand for credit on the corporate side showed signs of growth, while on the supply side, the banking manufacture lowered lending standards, particularly to priority sectors, in line with lower credit risk perception.  MSME loans enjoyed meaning growth on higher demand in line with recovering business organization action and authorities program back up.  Meanwhile, Depository financial institution Indonesia continues to hold the accommodative macroprudential policy opinion, while expanding macroprudential policy to priority sectors and MSMEs.  Bank Republic of indonesia projects credit growth in 2022, therefore, in the half-dozen-viii% range and eolith growth at 7-nine%.

Banking company Indonesia volition continue expanding payment system digitalisation and accelerating implementation of an inclusive digital economy and finance ecosystem to spur economic growth .  In 2021, Digital economic and financial transactions proliferated with rapidity given greater public acceptance and growing public preference towards online retail also as the expansion of digital payments and digital cyberbanking.  The value of e-money transactions increased 49.06% (yoy) to Rp305.4 trillion in 2021, which is projected to aggrandize another 17.13% (yoy) in 2022 to reach Rp357.7 trillion.  The value of digital banking transactions increased 45.64% (yoy) to Rp39,841.iv trillion in 2021, which is projected to expand another 24.83% (yoy) in 2022 to reach Rp49,733.viii trillion.  In terms of cash, currency in circulation grew half-dozen.78% (yoy) in Dec 2022 to Rp959.8 trillion.  In 2022, Bank Indonesia will continue to foster payment organization innovation, maintain a seamless and reliable payment system as well as strengthen coordination between government ministries/agencies to ensure adequate availability of rupiah currency fit for circulation throughout the territory of the Republic of Republic of indonesia.

Djakarta, twenty^th January 2022
Caput of Communication Department
Erwin Haryono
Executive Managing director
Information about Bank Republic of indonesia
Tel. 021-131, Email: bicara@bi.become.id

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Source: https://www.bi.go.id/en/publikasi/ruang-media/news-release/Pages/sp_241522.aspx

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