Indonesia Central Bank Statement

Author: IFLR Correspondent | Published: 24 Sep 2019
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Since I became Governor in May 2018, Bank Indonesia has strengthened the policy mix of monetary, macroprudential, and payment systems, as well as deepened financial market policies (the integrated policy framework) to cope with global economic challenges.

From 2018 to early 2019, these policies were directed towards maintaining macroeconomic stability while stimulating growth momentum. In the area of monetary policy, Bank Indonesia implemented a pre-emptive, front-loading, and ahead-of-the-curve monetary policy to ensure the continued safeguarding of economic stability. Therefore, Bank Indonesia raised the BI7DRR rate by 175 basis points in 2018 to deal with global uncertainties and the risk of external resilience.

During this period, Bank Indonesia also adopted macroprudential, payment systems and market deepening policies targeted at strengthening the momentum for economic growth, while continuing to safeguard financial system stability. Measures to promote higher economic growth had been introduced in a number of accommodative macroprudential, payment systems, and market deepening policies.

However, things had changed by mid-2019. Global economic growth has been moderated, induced by high global financial market uncertainty as a corollary of the ongoing US-China trade war and other geopolitical factors. However, domestic economic resilience remains strong. Inflation is low and projected below the midpoint of the target corridor, and the return on domestic financial investment assets remains attractive and supports external stability. The pre-emptive measure to safeguard economic growth momentum remains solid against the impact of global economic moderation. Considering this development, Bank Indonesia has lowered the BI7DRR rate by 50 basis points since July 2019. The monetary operations strategy has continued to ensure adequate liquidity and increasing money market efficiency, thus strengthening the transmission of accommodative monetary policy.

In the area of macroprudential policy, Bank Indonesia will maintain an accommodative macroprudential policy stance in order to stimulate bank lending and expand economic financing, including green finance.

As for payment systems, several programmes are being implemented to boost the economic growth momentum, such as the digitalisation of the social assistance programme, municipalities' transactions and payments in the transportation sector. Early this year, Bank Indonesia introduced the Indonesia's Payment System (IPS) 2025 Visions to ensure that the current trend of digitalisation develops within a conducive digital economic and financial ecosystem. The visions are an optimal response to the recent proliferation of digitalisation that has significantly altered the risk landscape through shadow banking, cyber threats, and unfair competition, which could undermine the effectiveness of monetary policy, financial system stability, and sound payment systems.

Moving forward, Bank Indonesia will maintain an accommodative policy mix in line with low inflation expectations, maintained external stability, and the need to boost economic growth momentum. Furthermore, coordination with the government and other relevant authorities is also being strengthened to maintain economic stability and catalyse domestic demand, while boosting exports and tourism and attracting foreign capital inflows, including foreign direct investment (FDI).