Bank of Indonesia’s “Monetary Policy Review” – February 2010, January 2010, and November 2009.

You are able to fetch the most recent copies of the Indonesian Central Bank’s Monetary Policy Review dated February 2010, January 2010, and November 2009. Below are quick descriptions of the content of each document.

Table of Contents (February 2010 edition)

I. Monetary Policy Statement

II. The Economy and Monetary Policy

Developments in World Economy
Economic growth in Indonesia
Inflation
Rupiah Exchange Rate
Interest Rates
Deposits, Credits, and Money Supply
Stock Market
SUN (Government’s Bond) Market
Mutual Fund Market
Banking Conditions

III. Monetary Policy Response

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Highlights (January 2010 edition)

As 2009 drew to a close, various economic indicators pointed to ongoing improvement in macroeconomic conditions in Indonesia. The overall condition of the global economy and financial markets has followed a positive trend. In developed countries, the economic recovery process is moving forward. At home, the improvement in the global economy has strengthened exports and investment. Domestic economic resilience has been coupled with reductions in inflationary pressure.

The balance of payments posted a surplus, contributing to the appreciation in the rupiah. With conditions improving in trading partner economies, exports are estimated to have mounted higher in Q4/2009. Imports growth is estimated higher in Q4/2009 in response to mounting domestic and external demand. Sectoral performance is also estimated higher in Q4/2009 from the effect of stronger external demand and stable demand at home.

In the financial sector, stability was maintained in the banking system. However, lending rates did not ease as expected. Looking forward, the outlook is for further improvement in the Indonesian economy, although various risks and uncertainties call for vigilance. In view of these problems and challenges, the Bank Indonesia monetary policy for achieving the 5±1% inflation target in 2010 will be backed by a series of policy actions.

On 6 January 2010, the Bank Indonesia Board of Governors Meeting decided to hold the BI Rate at 6.5%. Like before, the interest rate corridor is set at about +/-50 bps of the BI Rate, with the repo rate at 7% and the short-term deposit facility (FASBI) at 6%. In the key decisions underlying this decision, the BI Rate level remains consistent with the 5% ±1% inflation target for 2010 and the present monetary policy stance is also regarded conducive to the economic recovery process and the operation of the bank intermediation function. On the micro level, conditions in the national banking system remain stable.

Overall conditions in the world economy and global financial markets have seen steady improvement. Economies in advanced nations continue to march towards recovery. The US economy is on the mend, buoyed by stronger consumption and the improving condition of the labour market. Production sectors have begun to climb in the USA. The downward trend in the US dollar and keen risk appetite among investors has led to steady gains on global financial markets.

In 2009, the Indonesian economy grew by an estimated 4.3%. On the supply side, the world economic slowdown has impacted performance in tradable sectors, while non-tradable sectors continued to forge ahead. Indonesia’s economic growth in Q4/2009 is estimated higher in line with the ongoing improvement in global and domestic economic conditions.

Household consumption maintained comparatively robust growth in estimates for Q4/2009. Investment (gross fixed capital formation) charted higher estimated growth in Q4/2009 in line with strengthening external and domestic demand.

The ongoing recovery in the economy did not result in significant inflationary pressure during Q4/2009. World inflation in 2009 is estimated similar to one month earlier, due to the effects of the ongoing recovery in the world economy. The policy rates in most advanced nations reflect an accommodating stance. CPI inflation in 2009 was down sharply from the preceding year, mainly in response to non-fundamentals.

Analysed by influencing factors, the reduced inflation during Q4/2009 is explained primarily by non-fundamentals. Analysed by expenditure category, the decline in inflationary pressure during the quarter resulted from lower pressure across almost all expenditure categories, with the steepest decline recorded in food stuffs. Measured quarterly, administered prices inflation came to 0.69%, up from the previous quarter’s level of 0.61% (qtq). Inflationary pressure in volatile foods eased from the preceding quarter in response to secure supply conditions and the moderate level of global food stuff prices.

Throughout 2009, the rupiah maintained an appreciating trend in response to the onset of recovery in the global economy and improved risk appetite among global investors. The exchange rate held generally stable during December 2009 as reflected in reduced volatility, despite modest depreciation. General perceptions of investment risk in Indonesia remained comparatively favourable.

Yields on rupiah investments remained high in comparison to other countries in Asia. During 2009, Bank Indonesia adopted a loose bias monetary policy stance commensurate with the decline in inflationary pressure. The reductions in the BI Rate transmitted smoothly to short-term interest rates. Transmission of short-term rates was matched by healthy transmission of the monetary policy stance to interbank rates in longer tenors.

Money market liquidity became more evenly distributed as a result of softening perceptions of money market risk.

Transmission of monetary policy transmission to bank deposit rates also showed improvement. As regards lending rates, monetary policy transmission remained slow, particularly for consumption credit. The year 2009 was marked by steady growth in depositor funds.

In the credit channel, monetary policy transmission was again hampered by the slow pace of domestic economic growth and high loan interest rates. The slowing economic growth trend was reflected in similarly slack growth in M1. The loose bias monetary policy during 2009 has boosted asset prices with gains reflected in the JSX Composite Index (JCI).

Trading volume on the domestic stock market remained stable during 2009. On the government securities market, monetary policy transmission was reflected in lower yields with varying magnitude of decline by tenor. In similar developments, renewed foreign investor confidence boosted liquidity on the government securities market.

Table of Contents (January 2010 edition)

I. Monetary Policy Statement
II. The Economy and Monetary Policy

Developments in the World Economy
Economy Growth in Indonesia
Inflation
Rupiah Exchange Rate
Monetary Policy

Interest Rates
Funds, Credit, and the Money Supply
The Stock Market
The Government Securities Market
Mutual Funds Market
Condition of the Banking System

III. Monetary Policy Response

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Abstract (November 2009 edition)

The Indonesian economy showed further improvement in October 2009 alongside the ongoing recovery in the global economy. Positive developments continue on global financial markets in line with the ongoing economic recovery and stable perceptions among money market actors. At home, the various developments in the global economy have provided a boost to Indonesia’s economic performance.

Concerning prices, inflation eased further in October 2009 while staying below the historical trend. The ongoing improvement in exports and capital inflows augurs for strengthened performance in Indonesia’s Q4/2009 balance of payments, again projected to chart a surplus.

In the domestic financial sector, financial markets reported overall gains. Conditions in the banking system also reflect ongoing stability at the micro level.

On 4 November 2009, the Bank Indonesia Board of Governors Meeting decided to hold the BI Rate at 6.5%. The key considerations in this decision are that the 6.5% rate is consistent with the 5% ± 1% inflation target for 2010 and the present monetary policy stance is also regarded as conducive to economic recovery process and banking intermediation.

Table of Contents (November 2009 edition)

I. Monetary Policy Statement
II. The Economy and Monetary Policy