Spacious room for economic growth
This article has been translated by PwC Indonesia as part of our Indonesia Infrastructure News Service. PwC Indonesia has not checked the accuracy of, and accepts no responsibility for the content.
Bisnis Indonesia - Ruang lapang pertumbuhan ekonomi
19 April 2023
By: Sri Mas Sari
Bank Indonesia’s step to maintain the reference interest rate for three months in a row is good news for the national economy. Yesterday on Tuesday (18/4), BI announced BI-7 Day Reverse Repo Rate (BI-7DRR) would remain at 5.75%.
Indonesia has extra time to collect their strength to face the global slowdown threat, which can be seen from the export realisation in March that contracted by 11.3% (year-on-year/YoY) to US$23.5 billion, making it the worst performance after May 2020.
According to the Statistics Indonesia (BPS), the decrease occurred due to the reduction of demand from export destination countries and the decline in commodity prices. Meanwhile, exports contribute 30% to the gross domestic product (GDP).
Fortunately, the inflation pressure is weakening and the rupiah exchange rate to the US dollar is strengthening, so BI has space to slow down BI-7DRR.
BI Governor Perry Warjiyo, after the board of governors meeting on Tuesday (18/4), said that the core inflation has slowed down to the lowest level in seven months to 4.97% (YoY) in March, and it is predicted to recover to around 2%-4% in August, which is earlier from the previous forecast that predicted the recovery would occur in September.
According to him, the core inflation is one of the main considerations for BI’s monetary policies, which is predicted to remain at 3% until the end of the year.
“Bank Indonesia believes that BI-7DRR reaching 5.75% is sufficient to direct the core inflation to remain at around 2%-4% for the rest of 2023 and the consumer price index (CPI) to recover to around 2%-4% earlier from the previous forecast,” Perry said.
In terms of the exchange rate, rupiah has appreciated by 5.2% from the last position at the end of 2022, which makes it the best-performing currency in Asia.
BI even predicts that rupiah will continue to strengthen thanks to the inflow of foreign funds, the attractive return of government bonds, and the strong economic growth.
The central bank stated that they would continue their steps to stabilise rupiah to compensate for the inflation of imported goods.
With household consumption remaining strong with inflation dropping, mobility increasing, and investment continuing, BI predicts that economic growth this year can increase by around 4.5%-5.3%.
Boosting loans
BI’s policy to maintain the reference interest rate is also well received by bankers. They reckon that BI’s decision to maintain the reference rate will stabilise the loan interest rate in the second half of this year that can boost loan demand, including for business expansion.
PT Bank Rakyat Indonesia (Persero) Tbk is optimistic about loan growth accelerating this year as BI has stopped the monetary tightening cycle.
“BRI is optimistic about loans growing 10%-12% year-on-year until the end of 2023,” BRI Corporate Secretary Aestika Oryza Gunarto stated.
Moreover, PT Bank Mandiri (Persero) Tbk Finance and Strategy Director Sigit Prastowo explained that the company would study to adjust the loan interest rate and the third-party funds by considering several aspects, including the market interest rate and the regulatory policy direction.
Bank Mandiri logged that the cost of fund increased due to the increase in the reference interest rate in BI-7DRR. The cost of fund ratio as of the end of December 2022 is only 1.3%, which slowly increased by 1.69% in the first quarter of 2023.
“On the other hand, impacts from the increase in the reference rate cannot be recklessly passed through to debtors. We have to pay attention to the condition of the debtors,” Sigit said.
PT bank CIMB Niaga Tbk President Director Lani Darmawan reckoned that a steady BI-7DRR maintained the cost of fund to not continue to increase, so the burden to increase loan interest is lighter.
BI stated that credit growth this year was in line with the previous forecast at around 10%-12%, even though bank loans in March slowed down as the growth only reached 9.93% YoY compared to February when the growth reached 10.64% YoY.
Meanwhile, the Indonesian Employers Association (Apindo) mentioned that BI’s decision to maintain the reference interest rate boosted the confidence of business players.
“It will give a signal for the people to be confident in expanding,” Apindo Chairperson Hariyadi B. Sukamdani said.
He hopes that BI can lower the reference interest rate at the next meeting.
However, Indonesia Chamber of Commerce and Industry (Kadin) Maritime, Investment, and Foreign Affairs Deputy Chairperson Shinta W. Kamdani reckoned that BI maintaining the interest rate did not cause business players to pull their investment loans and work capital.
She said that, principally, business expansion was encouraged by demand growth, short-term to medium-term consumption growth forecast improvement, and return on investment or profit calculation compared to the cost of fund from loans.
“Besides that, consequences to the productive loan growth also need time at least until there the risk of further monetary tightening decreases,” Shinta stated.
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