Bank Indonesia holds rate at 5.75pc as expected

JAKARTA: Text of Bank Indonesia's policy statement, translated by Reuters.

The meeting of board of governors on February 12, 2013, decided to hold the BI rate at 5.75 percent.

The level of the BI rate remains consistent with manageable inflationary pressures well within the inflation target in 2013 and 2014 of 4.5 percent, plus or minus 1 percent. Bank Indonesia considers that the economy of Indonesia remains resilient, but is vigilant with rising pressures on external balances due to strong imports amid the global economic slowdown.

Looking ahead, Bank Indonesia will strengthen its policy mix to promote an adjustment in external balances so that the current account deficit will be at a sustainable level.

Bank Indonesia will maintain the stability of the rupiah in line with its fundamentals and promote a more efficient forex market. In addition, Bank Indonesia will strengthen coordination with the government to manage domestic demand, in order to maintain the sustainability of the macroeconomy and the sustainability of the nation's growth.

Indonesia's economy grew strongly, bolstered by domestic demand, although slowing from the previous period. Economic growth in the fourth quarter of 2012 was 6.11 percent, while the full year of 2012 rose 6.23 percent.

Consumption and investment in the fourth quarter stayed robust, even though at a moderate pace compared with the previous quarter. In the first quarter of 2013, economic growth is seen expanding 6.2 percent, mainly supported by domestic demand.

For the full year of 2013, after calculating economic activities in the third quarter and fourth quarter of 2013 including spending for general election preparations, economic growth is expected to expand between 6.3 percent and 6.8 percent.

On the external side, the balance of payments in the fourth quarter of 2012 improved in surplus despite a higher-than-expected current account deficit.

The improvement was due to better performance in capital and financial transactions which was supported by liquidity in the global financial markets.

In addition, the rising current account deficit was caused by a fall in the surplus of the non-oil and gas trade balance and an increasing deficit in the oil and gas trade balance.

Looking ahead, the current account in the first quarter of 2013 is expected to improve, mainly due to a better performance in exports in line with economic recovery in major trade counterpart countries such as China and the US

In January 2013, the rupiah weakened by 0.22 percent month-to-month to 9,654 per US dollar with manageable volatility. Looking ahead, Bank Indonesia will maintain the stability of the rupiah within the fundamentals of the economy.

In addition, Bank Indonesia will promote the establishment of a reference exchange rate of the rupiah in the domestic spot market. The reference is aimed to add liquidity and efficiency in the forex market so that it can deepen the domestic forex market.

The consumer price index in January 2013 increased but is expected to be manageable within its target. January inflation was 1.03 percent month-to-month or 4.57 percent year-on-year as a result of heavy rains which caused disruption in distribution and production. Meanwhile, core inflation remains stable at 4.32 percent year-on-year, supported by relatively manageable inflationary expectations, well-managed demand in line with production capacity, as well as a manageable exchange rate of the rupiah.

Looking ahead, there are some risk factors that need to be observed which can increase inflationary pressure, such as weather that can disturb production and food distribution, and increasing of some administered prices.

The stability of the financial system and banking intermediary function is well maintained. Loan growth at the end of December 2012 was 23.1 percent year-on-year. Growth in loans for working capital was quite high at 23.3 percent year-on-year and investment loans rose 27.4 percent year-on-year, and are expected to increase the capacity of the economy.

Meanwhile, consumer loans grew 20 percent year-on-year. Looking ahead, Bank Indonesia believes that stability of the financial system will remain, with increasing banking intermediary functions in tandem with better performance of the economy.