Jakarta: The Bank Indonesia (BI) Board of Governors has agreed to lower the BI 7-day Reverse Repo Rate by 25 bps to 5,75%.
"Deposit Facility (DF) rates lowered 25 bps to 5,00% and Lending Facility (LF) rates lowered 25 bps to 6,50%," BI Governor Perry Warjiyo told a press conference here on Thursday afternoon.
The policy is consistent with low inflation expectations and the need to build economic growth momentum amidst a backdrop of easing global financial market uncertainty and controlled external stability.
The monetary operations strategy remains oriented towards ensuring adequate liquidity in the money market and strengthening the transmission of accommodative monetary policy.
BI is maintaining an accommodative macroprudential policy stance to encourage bank lending and expand economic financing.
In addition, BI constantly strengthens payment system policy and financial market deepening to support economic growth.
Moving forward, BI perceives adequate space for accommodative monetary policy in line with low inflation expectations and the need to further stimulate economic growth.
Moreover, BI will continue to strengthen coordination with the Government and other relevant authorities in order to maintain economic stability and catalyse domestic demand, while boosting exports and tourism as well as attracting foreign capital inflows, including Foreign Direct Investment (FDI).
Ongoing trade tensions continue to pressure world trade volume and undermine global economic growth. Flatter growth is predicted in the United States as exports decline due to simmering trade tensions, the fading effect of fiscal stimuli and restrained economic confidence. Growth has also slowed in Europe as a result of sluggish exports coupled with the ongoing structural issue of an aging population, which is undermining domestic demand. Declining exports and weaker domestic demand are also plaguing the economies of China and India.
Global economic moderation, in turn, has amplified downside pressures on commodity prices, including oil. Several central banks in advanced and developing economies have responded to the inauspicious economic dynamics by relaxing monetary policy, including the US Federal Reserve, which is expected to lower the federal funds rate (FFR). The prevailing policy response has reduced global financial market uncertainty and driven foreign capital inflows to developing economies.
At home, Indonesia has maintained relatively stable economic growth in the second quarter of 2019 compared with conditions in the previous period. Private consumption remains solid, backed by maintained consumer confidence. Furthermore, building investment continues to expand at a stable pace.
Meanwhile, exports from Indonesia are expected to contract on subdued global demand and lower commodity prices stemming from the ongoing trade dispute, although steel exports increased in June 2019. The impact of simmering trade tensions on lower exports has been felt in a number of countries. In Indonesia, the export contraction has impeded imports and undermined nonbuilding investment.
Moving forward, efforts to stimulate domestic demand, including investment, are required in order to mitigate the adverse impact of global economic moderation. In general, BI projects national economic growth in Indonesia below the midpoint of the 5.0-5.4% range in 2019. In addition, BI will institute a policy mix in cooperation with the Government and other relevant authorities in order to build economic growth momentum.