In the Board of Governors : Meeting convened on Tuesday, 5 August 2008, Bank Indonesia decided to raise the BI Rate a further 25 bps to 9.0%. This decision was taken to reinforce the stability of the Indonesian economy and financial system and specifically to support the medium-term outlook for the inflation target.
In the view of Bank Indonesia, there is a continued risk of future inflationary pressure driven by the turbulence in world oil and food prices and pressure from domestic demand. This strong risk of inflationary pressure was a key consideration for Bank Indonesia in the renewed BI Rate hike in August. Nevertheless, the inflationary impact of the fuel price hike has eased. To reinforce monetary policy effectiveness, the decision to raise the BI Rate was taken in tandem with optimisation of other monetary policy instruments, such as control of exchange rate volatility and absorption of excess liquidity in Open Market Operations (OMO). Under this integrated policy, the targeted inflation of 6.5%-7.5% in the year of 2009 is regarded as achievable.
The 25 bps BI Rate hike in August 2008 is not expected to adversely impact economic activity in Indonesia. Various indicators point to continued robust domestic demand. Banking industry resilience remains strong, supported by the healthy operation of the intermediary function. Bank credit expansion is up at 31.6% (yoy) with non-performing loans (NPLs) having dropped to 4.08% (gross). Motor vehicle and cement sales are on a robust upward trend. In 2008, the Indonesian economy is forecasted to maintain vigorous growth on the strength of rising exports, private consumption and high government spending. Domestic demand is also bolstered by increased regional government expenditures and the launching of preparations for national elections in 2009.
Monthly Consumer Price Index (CPI) inflation in July 2008 reached 1.37%, bringing the annual rate of inflation to 11.90% compared to 11.03% in the preceding month. Inflation for January-July 2008 thus came to 8.85%, far above the 2.72% charted for the same period one earlier. After taking account of the various risks and inflationary pressure expected to carry through to the end of the year, Bank Indonesia forecasts CPI inflation at the end of 2008 within the range of 11.5%-12.5% (yoy). Alongside this, the balance of payments is projected to maintain a strong surplus insupport of exchange rate stability. At the end of July 2008, international reserves stood at USD60.56 billion, equivalent to 4.7 months of imports and servicing of official foreign debt.
Looking ahead, Bank Indonesia will consistently evaluate the outlook for the economy and inflation based on the latest available information in order to maintain an optimum monetary policy stance for the future.
Source:http://www.bi.go.id/NR/rdonlyres/EF2CA58A-169A-490C-AA75-3D0AF734E434/14579/MPRAugust2008.pdf
In the view of Bank Indonesia, there is a continued risk of future inflationary pressure driven by the turbulence in world oil and food prices and pressure from domestic demand. This strong risk of inflationary pressure was a key consideration for Bank Indonesia in the renewed BI Rate hike in August. Nevertheless, the inflationary impact of the fuel price hike has eased. To reinforce monetary policy effectiveness, the decision to raise the BI Rate was taken in tandem with optimisation of other monetary policy instruments, such as control of exchange rate volatility and absorption of excess liquidity in Open Market Operations (OMO). Under this integrated policy, the targeted inflation of 6.5%-7.5% in the year of 2009 is regarded as achievable.
The 25 bps BI Rate hike in August 2008 is not expected to adversely impact economic activity in Indonesia. Various indicators point to continued robust domestic demand. Banking industry resilience remains strong, supported by the healthy operation of the intermediary function. Bank credit expansion is up at 31.6% (yoy) with non-performing loans (NPLs) having dropped to 4.08% (gross). Motor vehicle and cement sales are on a robust upward trend. In 2008, the Indonesian economy is forecasted to maintain vigorous growth on the strength of rising exports, private consumption and high government spending. Domestic demand is also bolstered by increased regional government expenditures and the launching of preparations for national elections in 2009.
Monthly Consumer Price Index (CPI) inflation in July 2008 reached 1.37%, bringing the annual rate of inflation to 11.90% compared to 11.03% in the preceding month. Inflation for January-July 2008 thus came to 8.85%, far above the 2.72% charted for the same period one earlier. After taking account of the various risks and inflationary pressure expected to carry through to the end of the year, Bank Indonesia forecasts CPI inflation at the end of 2008 within the range of 11.5%-12.5% (yoy). Alongside this, the balance of payments is projected to maintain a strong surplus insupport of exchange rate stability. At the end of July 2008, international reserves stood at USD60.56 billion, equivalent to 4.7 months of imports and servicing of official foreign debt.
Looking ahead, Bank Indonesia will consistently evaluate the outlook for the economy and inflation based on the latest available information in order to maintain an optimum monetary policy stance for the future.
Source:http://www.bi.go.id/NR/rdonlyres/EF2CA58A-169A-490C-AA75-3D0AF734E434/14579/MPRAugust2008.pdf
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