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Monetary Policy Report MONETARY POLICY REPORT Quarter I 2021 Foreword The Board of Governors PERRY WARJIYO Guvernor DESTRY DAMAYANTI Senior Deputy Governor SUGENG Deputy Governor ROSMAYA HADI Deputy Governor DODY BUDI WALUYO Deputy Governor DONI PRIMANTO JOEWONO Deputy Governor i Quarter I 2021 Table of Content Foreword i Executive Summary 1 The Board of Governors i 1. Global and Domestic Economic 2 Developments Table of Content ii 2. Bank Indonesia Policy Response 5 Quarter I 2021 ii Executive Summary The global economy is expected to surpass previous although further opportunities to stimulate the bank growth forecasts despite the ongoing multispeed intermediation function remain. Cash and non-cash recovery. At home, domestic economic gains are payment system transactions are increasing in line with persisting on the back of stronger export performance rapid economic and financial digitalization. and fiscal spending. Indonesia's Balance of Payments The BI Board of Governors Meeting agreed on 19th and (BOP) remains solid, thereby reinforcing external sector 20th April 2021 to hold the BI 7-Day Reverse Repo Rate at resilience. In line with Bank Indonesia stabilization 3.50%, while also maintaining the Deposit Facility (DF) measures, rupiah exchange rates remain relatively stable, rates at 2.75% and Lending Facility (LF) rates at 4.25%. despite persistently elevated global financial market The decision is consistent with the need to maintain uncertainty. Inflation remains low in line with weak rupiah exchange rate stability amidst persistently demand and adequate supply. In line with Bank elevated global financial market uncertainty despite Indonesia's accommodative monetary policy stance and projected low inflation. Supporting the national economic synergy with fiscal policy to stimulate economic recovery, recovery effort, Bank Indonesia has optimized its loose liquidity conditions persist in the banking industry accommodative monetary and macroprudential policy and financial markets. Interest rates are coming down in mix and accelerated payment system digitalization. response to a lower policy rate and loose liquidity conditions. Financial system resilience is still solid, 1 Quarter I 2021 CHAPTER I Global and Domestic Economic Developments The global economy is expected to surpass previous economies, including Indonesia. Meanwhile, elevated growth forecasts despite the ongoing multispeed financial market uncertainty and UST yield volatility recovery. Such developments stem primarily from persist in line with faster economic recovery momentum economic gains posted in the United States and China as in the US and market perception of the Federal Reserve's the main drivers of the global recovery. The US economic policy direction. Such developments have eroded capital recovery is gaining momentum in line with the orderly inflows and intensified currency pressures in most vaccination rollout and additional large-scale fiscal developing economies, including Indonesia. stimuli. In China, stronger economic growth is supported At home, domestic economic gains are persisting on the by growing domestic and global demand. Therefore, Bank back of stronger export performance and fiscal spending. Indonesia has revised its global economic growth Exports are expected to continue improving beyond early projection for 2021 upwards to 5.7% from 5.1% projections at the beginning of the year on growing previously. Stronger global economic recovery demand from Indonesia's main trading partners, China in momentum was also confirmed by several early indicators particular, driven by crude palm oil (CPO), metal ore, pulp in March 2021, including upward trends recorded in and wastepaper, motor vehicles as well as iron and steel. terms of the Purchasing Managers Index (PMI), consumer Spatially, export performance is improving in the Java confidence and retail sales in several countries. In region along with Sulawesi-Maluku-Papua (Sulampua). response to global economic gains, world trade volume Fiscal stimuli in the form of social aid program (bansos) and international commodity prices are also increasing, disbursements, procurement and capital spending have thus boosting export performance in developing also increased beyond previous forecasts. Meanwhile, Quarter I 2021 2 consumer expectations and retail sales in March 2021 investment to domestic financial markets. As of 19th April point to subdued private consumption gains in line with 2021, therefore, the rupiah recorded 3.42% (ytd) public mobility restrictions amidst government efforts to depreciation against the yearend level in 2020, which is accelerate the national vaccination program. Therefore, comparatively lower than several other emerging Bank Indonesia projects national economic growth for markets, however, such as Brazil, Turkey and Thailand. 2021 in the 4.1-5.1% range. Moving forward, domestic Bank Indonesia continues to strengthen exchange rate economic recovery momentum is expected to build in stabilization policy in line with the rupiah's fundamental response to stronger exports, ongoing fiscal stimuli and value and market mechanisms through effective increasing investment, as signalled by the upward monetary operations and adequate market liquidity. manufacturing PMI trend. Orderly implementation of the Inflation remains low in line with weak demand and vaccination program, coupled with the disciplined adequate supply. In March 2021, the Consumer Price application of Covid-19 protocols, remain a prerequisite Index (CPI), as a measure of headline inflation, stood at for a faster domestic demand recovery. 0.08% (mtm) or 1.37% (yoy). Core inflation is also low in Indonesia's Balance of Payments (BOP) remains solid, line with compressed domestic demand, maintained thereby reinforcing external sector resilience. A narrow exchange rate stability and consistent Bank Indonesia current account deficit is expected in the first quarter of policy to anchor inflation expectations to the target 2021, supported by a maintained trade surplus of corridor. Inclement weather has edged up volatile food USD5.52 billion after posting an USD8.27 billion surplus in inflation yet remains under control. Inflationary pressures the previous period. The trade surplus was primarily on administered prices are also mild in response to underpinned by demand in China, US and Japan, together unchanged toll road charges and airfares. Therefore, with higher international commodity prices. Several inflation in 2021 is projected to remain under control primary commodities recorded increases in terms of within the 3.0%±1% target range. Bank Indonesia is still export value, such as CPO and metal ore, as well as firmly committed to maintaining price stability and manufacturing commodities, including iron and steel, strengthening policy coordination with the Government organic chemicals and motor vehicles. Meanwhile, the through national and regional inflation control teams (TPI capital account is expected to maintain a surplus in and TPID) to control headline inflation within the response to capital inflows in the form of foreign direct predetermined target range. Such coordination with the investment (FDI) and portfolio investment. Portfolio Government is currently focused on controlling investment recorded a net inflow totalling USD5.43 billion inflationary pressures during the holy fasting month of in the first quarter of 2021. The position of reserve assets Ramadan and Eid-ul-Fitr festive period 1442 H. at the end of March 2021 stood at USD137.1 billion, In line with Bank Indonesia's accommodative monetary equivalent to 10.1 months of imports or 9.7 months of policy stance and synergy with fiscal policy to stimulate imports and servicing government external debt, which is economic recovery, loose liquidity conditions persist in well above the three-month international adequacy the banking industry and financial markets. Beginning in standard. Moving forward, Bank Indonesia projects a low 2020, Bank Indonesia has injected liquidity through current account deficit in the 1.0-2.0% of GDP range in quantitative easing to the banking industry totalling 2021, thus supporting external sector resilience in Rp798.85 trillion (5.18% of GDP), consisting of Rp726.57 Indonesia. In addition, various measures to reinforce trillion in 2020 and Rp72.27 trillion in 2021 (as of 16th external resilience are being taken through April 2021). Synergy between monetary expansion and implementation of the Job Creation Act to attract foreign fiscal stimuli has been strengthened through SBN capital inflows in the form of FDI and portfolio purchases by Bank Indonesia in the primary market. After investment, while maintaining the attractiveness of making purchases in the primary market totalling domestic financial assets for investment. Rp473.42 trillion to fund the 2020 State Budget, Bank In line with Bank Indonesia stabilization measures, Indonesia is continuing to purchase SBN in the primary rupiah exchange rates remain relatively stable, despite market in 2021 to help fund the 2021 State Budget persistently elevated global financial market through mechanisms pursuant to the Joint Decree issued uncertainty. As of 19th April 2021, the rupiah depreciated by the Minister of Finance and Governor of Bank 1.16% on average, or by 0.15% (ptp) on the March 2021 Indonesia on 16th April 2020, which was subsequently level. Rupiah depreciation is consistent with persistently extended on 11th December 2020 until 31st December high global financial market uncertainty that has 2021.
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