The global economic crisis has had a serious impact, beating time with their original predictions. Recent developments indicate that almost all developed countries and some developing countries will see a significant contraction in GDP during 2009. The liquidity crisis is also expected to keep taking on world financial markets as a result of ongoing deleveraging process in some developed economies.
In response to these developments, Bank Indonesia expected that in 2009 the Indonesian economy will grow 4% -5% with a risk of downward bias in the event of damage more global. Slowing export growth will be the primary cause of weakening of economic performance in 2009. The main source of impetus for economic growth this year will be domestic demand, driven mainly by private consumption driven by rising levels of provincial minimum wage, the costs associated with the central government and regional social policies and expenditure with the elections by political parties. Together with this, will benefit from the investment of the Central Government for capital expenditures and the fiscal stimulus integral infrastructure construction, and capital expenditure of the Regional Government
With the global economy and commodity prices in decline, inflationary pressure in Indonesia has begun to ease, with this trend predicted to carry forward in 2009. If the downward movement in prices for commodities, subsidised fuels and rice maintains a favourable trend, there is a strong likelihood of achieving the lower limit of the 5%-7% inflation projection for 2009. There are growing indications of future easing of inflationary pressures. Weakening domestic demand, steeper decline in international commodity prices (foodstuffs and energy) and adequately maintained supply of energy and staples are among the factors supporting the easing of inflationary pressures. Furthermore, the stronger than expected plunge in international crude prices could pave the way for further cuts in subsidised fuel prices. This in turn could push down prices for fuel-related items, such as transport fares.
In related developments, the average rupiah exchange rate appreciated further in January 2009, despite some weakening near month-end. The rupiah came under short-term pressure from external conditions marked by uncertainty over the economic outlook in various regions and turbulence on global financial markets. Bank Indonesia will stay the course with stabilisation of the rupiah to avoid excessive forex market volatility.
Amid these economic developments and with inflationary pressures in decline, Bank Indonesia is focusing its energies on sustaining domestic economic growth. In so doing, Bank Indonesia is maintaining a close watch on inflation, macroeconomic stability and the medium-term stability of the financial sector. Bank Indonesia is pursuing a series of monetary policy actions to prevent further losses in the real sector.
In the decision of the Board of Governors’ Meeting in February 2009, Bank Indonesia lowered the BI Rate by a further 50 bps from 8.75% to 8.25%, the third such action since December 2008. Besides cutting the BI Rate, Bank Indonesia will continue to optimise the use of all monetary instruments at its disposal, such as Open Market Operations (OMOs), while maintaining stability on the rupiah and forex markets. Added to this, the monetary policy relaxation has been accompanied by Bank Indonesia actions to promote bank lending to productive sectors within the limits of prudential banking. This measure is expected to deliver a boost to the domestic economy that will prevent steeper decline.
Banking indicators point to response to the BI Rate cut in time deposit rates and lending, albeit on a limited scale. The downward movement of interest rates is also expected to ease supply constraints on bank loans. As for the business community, the lower interest rates are expected to businesses against pessimism about economic prospects.
The Indonesian banking system remains in solid form with the capital adequacy ratio (CAR) and loans (NPLs) within safe limits. Various measures to reduce the segmentation in the banking sector liquidity have also shown results to be reflected in the renewed improvement in the flow of liquidity in the interbank money market, compared to a few months earlier.
Looking ahead, the Board of Governors of Bank Indonesia to maintain the course with a pro-growth, keeping a close watch on the macroeconomic stability. In addition to easing inflationary pressures will allow more room for rate cuts in the BI. Support for reducing the rate of Biscay also come from other actions for improving and strengthening the financial sector, including improvements to the system of banking supervision. Bank Indonesia will continue its efforts to expand the role of the banking sector as a source of financing companies and the momentum for economic growth.
Source: Bank Indonesia
In response to these developments, Bank Indonesia expected that in 2009 the Indonesian economy will grow 4% -5% with a risk of downward bias in the event of damage more global. Slowing export growth will be the primary cause of weakening of economic performance in 2009. The main source of impetus for economic growth this year will be domestic demand, driven mainly by private consumption driven by rising levels of provincial minimum wage, the costs associated with the central government and regional social policies and expenditure with the elections by political parties. Together with this, will benefit from the investment of the Central Government for capital expenditures and the fiscal stimulus integral infrastructure construction, and capital expenditure of the Regional Government
With the global economy and commodity prices in decline, inflationary pressure in Indonesia has begun to ease, with this trend predicted to carry forward in 2009. If the downward movement in prices for commodities, subsidised fuels and rice maintains a favourable trend, there is a strong likelihood of achieving the lower limit of the 5%-7% inflation projection for 2009. There are growing indications of future easing of inflationary pressures. Weakening domestic demand, steeper decline in international commodity prices (foodstuffs and energy) and adequately maintained supply of energy and staples are among the factors supporting the easing of inflationary pressures. Furthermore, the stronger than expected plunge in international crude prices could pave the way for further cuts in subsidised fuel prices. This in turn could push down prices for fuel-related items, such as transport fares.
In related developments, the average rupiah exchange rate appreciated further in January 2009, despite some weakening near month-end. The rupiah came under short-term pressure from external conditions marked by uncertainty over the economic outlook in various regions and turbulence on global financial markets. Bank Indonesia will stay the course with stabilisation of the rupiah to avoid excessive forex market volatility.
Amid these economic developments and with inflationary pressures in decline, Bank Indonesia is focusing its energies on sustaining domestic economic growth. In so doing, Bank Indonesia is maintaining a close watch on inflation, macroeconomic stability and the medium-term stability of the financial sector. Bank Indonesia is pursuing a series of monetary policy actions to prevent further losses in the real sector.
In the decision of the Board of Governors’ Meeting in February 2009, Bank Indonesia lowered the BI Rate by a further 50 bps from 8.75% to 8.25%, the third such action since December 2008. Besides cutting the BI Rate, Bank Indonesia will continue to optimise the use of all monetary instruments at its disposal, such as Open Market Operations (OMOs), while maintaining stability on the rupiah and forex markets. Added to this, the monetary policy relaxation has been accompanied by Bank Indonesia actions to promote bank lending to productive sectors within the limits of prudential banking. This measure is expected to deliver a boost to the domestic economy that will prevent steeper decline.
Banking indicators point to response to the BI Rate cut in time deposit rates and lending, albeit on a limited scale. The downward movement of interest rates is also expected to ease supply constraints on bank loans. As for the business community, the lower interest rates are expected to businesses against pessimism about economic prospects.
The Indonesian banking system remains in solid form with the capital adequacy ratio (CAR) and loans (NPLs) within safe limits. Various measures to reduce the segmentation in the banking sector liquidity have also shown results to be reflected in the renewed improvement in the flow of liquidity in the interbank money market, compared to a few months earlier.
Looking ahead, the Board of Governors of Bank Indonesia to maintain the course with a pro-growth, keeping a close watch on the macroeconomic stability. In addition to easing inflationary pressures will allow more room for rate cuts in the BI. Support for reducing the rate of Biscay also come from other actions for improving and strengthening the financial sector, including improvements to the system of banking supervision. Bank Indonesia will continue its efforts to expand the role of the banking sector as a source of financing companies and the momentum for economic growth.
Source: Bank Indonesia
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