DEPOK (eNBe Indonesia) - Bank Indonesia (BI) held its key 7-day reverse repurchase rate unchanged at a record low of 3.5% on Tuesday (September 21), in line with market expectations. The overnight deposit facility and lending facility rates were also left unchanged at 2.75% and 4.25%, respectively.
Policymakers said the decision weighed the central bank’s goals of supporting economic growth while maintaining stability at the exchange rate level amid low inflation expectations. The central bank Governor added that domestic activities have gradually improved after some restrictions were eased and called on banks to continue lowering credit rates.
On the price front, the annual inflation rate inched up to 1.59% in August, from 1.52% in July but was still below the 2% lower limit of the central bank’s target. Looking ahead, the central bank maintained its prior 2021 growth forecasts of 3.5% to 4.3% and saw the current account deficit stands between 0.6% and 1.4% of GDP.
BI said it continues to optimize its policy mix towards maintaining macroeconomic and financial system stability while supporting national economic recovery efforts. It would maintain the rupiah exchange rate policy, strengthen monetary operations strategy, and strengthen policy coordination with the Government concerning social aid program (bansos) digitalization and government transaction electronification to increase government spending realization.
Baca Juga: Economic Recovery Momentum
BI is also promoting trade and investment and continuing to socialize the use of local currency settlement (LCS) in conjunction with other relevant institutions. In September and October 2021, BI promotes trade and investment in Japan, China, and the United Kingdom (UK). The central bank also maintains financial system stability. It stimulates lending to the corporate sector and other priority sectors, thus boosting economic growth and exports while increasing economic and financial inclusion.
Meanwhile, BI noted that the global economic recovery remains intact, though the recent surge of COVID-19 cases and disruptions to the supply chain in several countries demand attention. The pace of economic recovery in the latter half of 2021 is slower than previously expected in the United States (US), China, and Japan. In contrast, economic recoveries in Europe and Latin America are accelerating, thus underpinning global economic growth.
Several early indicators in August 2021, including the Manufacturing Purchasing Managers Index (PMI) and retail sales, remain solid despite the PMI Suppliers’ Delivery Times Index pointing to transportation delays. Consequently, Bank Indonesia’s global economic growth projection for 2021 remains at 5.8%.
Baca Juga: Economic Outlook for 2021
World trade volume and international commodity prices have posted strong gains, thus supporting the export outlook in developing economies. Global financial market uncertainty has not fully subsided, impacted by corporate default in China’s financial markets, the US Federal Reserve’s tapering policy, and rising COVID-19 cases. Such conditions are influencing global investor preferences concerning portfolio flows to developing economies.
The Organization for Economic Cooperation and Development said the world economy is expected to grow by 5.7% this year, little changed from a 5.8% expansion projected in May, supported by the vaccine roll-out and a gradual resumption of economic activity.
Still, the Paris-based policy forum said that the recovery remained uneven. It was too early for governments and central banks to withdraw exceptional support for their economies despite growing inflationary pressure. The US GDP is seen rising by 6.0% in 2021 (vs 6.9% projected in May), while the Eurozone should advance by 5.3% (vs 4.3%). China will probably grow by 8.5% (the same as projected in May), Japan by 2.5% (vs 2.6%) and India by 9.7% in the 2021-22 fiscal year (vs 9.9%)
IMF Deputy Managing Director Antoinette M. Sayeh also said the global economy is on a path to recovery, but this recovery hides a deeply worrying difference between countries. The recovery is creating a growing divergence between advanced economies and many emerging and developing economies. The main reason for that is unequal access to vaccines.***
Economic Focus for 2021