BANK INDONESIA’S POLICY MIX:

BALANCING STABILITY AND GROWTH

Mandiri Investment Forum 2019 – Bank Mandiri
30 January 2019
PERRY WARJIYO
Governor
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Global Economy: Moderating in 2019
Global economic growth is expected to moderate despite slightly less uncertainty. US economy is expected to
consolidate in 2019,
Click to edit Europe’s
Master economy is also predicted to moderate, and China’s economy is decelerating.
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World Trade Volume & Commodity Prices: Slowing Down in 2019
• Global economic slowdown, coupled with uncertainty in the global financial market, have lowered world trade volume growth.
• Consequently,
Click to edit international commodity prices also declining, including the global oil prices due to higher supply from the
Master title style
United States.
COMMODITY PRICES ARE EXPECTED TO SLIDE OIL PRICES IS EXPECTED TO DECREASE

Source: Bloomberg, data as of 31 December 2018

WORLD TRADE VOLUME REMAINED LOW

Source: Bloomberg and Bank Indonesia’s projection Source: WEO October 2018 and WTO September 2018
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Monetary Policy Adjustment: Continuing, but Not as Tight as Predicted
• FFR is expected to increase 2x in 2019, lower from earlier prediction of 3x, due to US economic slowgdown.
• Global financial market uncertainty slightly eased, giving rise to Emerging Markets’ capital flows.
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• Remain vigilant on the possibility of ECB monetary policy adjustment process and interest rate hikes in the region.
US INFLATION EXPECTATION IS DECREASING, ALTHOUGH STILL HIGH FFR IS EXPECTED TO INCREASE 2X IN 2019
%(yoy, avg)
3 2018 2019

2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5

2.3 2.4 2.4
2.5 2.1 2.3
2.2 2.2 2.2 2.2 2.2 2.3 2.3
2.1 2.1 2.1 2.1
2

1.5

0.5

0
Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18
Sumber: Consensus Forecast Source: Bloomberg, based on WIRP Implied Probability
Source: Consensus Forecasts
RISING CAPITAL INFLOWS IN THE EMERGING MARKETS CENTRAL BANKS PLAN TO INCREASE POLICY RATES

Source: EPFR, Fund Flows Source: Various Reports

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Domestic Economy Remains Strong in 2018 and Expected to Continue in 2019
In 2019, Indonesia economic growth will be supported by strong domestic demand, both from consumption and investment, and a
better
Clicknet
to export performance,
edit Master in line with the expected export increase and import decrease.
title style
ECONOMIC RECOVERY IS EXPECTED TO CONTINUE, SUPPORTED BY DOMESTIC MIDDLE-UPPER CLASS CONSUMPTION SUPPORTED BY INCOME
DEMAND FROM CONSUMPTION AND INVESTMENT GROWTH

INVESTMENT IN PRIVATE PROPERTY CONSTRUCTION PROJECT IS STILL

INCREASING
300%

250%

200%

150%

100%

50%

0%

-50%

-100%

14Q1
14Q2
14Q3
14Q4
15Q1
15Q2
15Q3
15Q4
16Q1
16Q2
16Q3
16Q4
17Q1
17Q2
17Q3
17Q4
18Q1
18Q2
18Q3
18Q4
Residential Property Commercial Property Infrastructure Industrial Estate
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Strong Regional Economic Growth
• Boosted by investment and government spending, amidst decreasing net export due to the
slowdown
Click in natural
to edit Masterresources’
title styleexport in Maluku, Papua, and Bali Nusa Tenggara.
• The role of manufacturing sector in boosting export is still concentrated in Java.

REGIONAL GDP Q-III 2018 GROWTH PROJECTION IN 2019

Sumatra
• 4,4% -
4,8%

Java
• 5,6% -
6,0%

Eastern • 3,8% -
& Other
Regions 4,2%
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Inflation is Low and Stable in 2018 and Expected Within Target 3,5+1% in 2019
• Click
Inflation targets
to edit were title
Master achieved
stylein the last 4 consecutive INFLATION TARGET ACHIEVED IN 2018 AND EXPECTED TO CONTINUE IN 2019
years; a reflection of Bank Indonesia’s consistency and 2017 2018 2019f
commitment to maintain macroeconomic stability.
CPI 3.61 3.13 3.5+1%
• Going forward, inflation is expected to remain under control Core 2.95 3.07 3.5+1%
within target, supported by manageable pressure from
demand side, volatile food and administered prices, inflation Adm. Prices 8.70 3.36 3.0+1%
expectation, and exchange rate stability. Volatile Food 0.71 3.39 4.0+1%

INFLATION WITHIN TARGETS IN THE LAST 4 YEARS INFLATION EXPECTATIONS IN 2019 ARE WELL ANCHORED
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Regional Inflation Well Maintained
• Regional inflation well maintained in almost all regions.
• Click
Several
toregions recorded
edit Master titlehigh inflation, such as SulTeng, Kaltara, Kalteng, Papua, and PapBar, due to the effect from price
style
increase in several food commodity as well as impact from natural disasters.

REGIONAL INFLATION DECEMBER 2018 (% YOY)

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Current Account Deficits (CAD) in 2019 is Expected to Decrease
CAD in 2018 is expected within the safe threshold of 3% GDP, amidst rising import in infrastructure (21% of total non oil and gas
import
Click in
to2018). Going forward,
edit Master CAD is expected to decrease to around 2.5% GDP, supported by continued efforts on coordination
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and real actions towards increasing export and decreasing import.
ALTHOUGH CAD IN Q3 IS STILL IN DEFICIT, CAD WILL IMPROVE IN 2019 TRADE DEFICIT IN DEC 2018 STOOD AT USD1.10 BILLION, BETTER THAN THAT
IN PREVIOUS MONTH; FULL YEAR DEFICIT IN 2018 REACHED USD8.57 BILLION

Source: BPS

CAD IMPROVEMENT IN 2019 IS SUPPORTED BY POLICIES TO INCREASE

EXPORT AND REDUCE IMPORT
INFRASTRUCTURE
B20 PROGRAM PROJECT POSTPONED
USAGE OF CRUDE OIL FROM
DOMESTIC PRODUCTION
. TOURISM
INCREASE IN VAT 22
ON IMPORTS
Source: Bank Indonesia
Rupiah Moves in Line with Market Mechanisms and Supported by 10

Improvements in External Resiliency

• Rupiah has been appreciating in the last several months, backed by capital inflows.
Click toinedit
• Rupiah 2018Master title style
depreciated by 5.65% compared to the previous year, relatively better than several peer countries. In January
2019, Rupiah appreciated by 1.52% (ytd).
• Official reserves increased to USD 120,7 billions in Dec 2018, equivalent to 6.5 months of import and Govt debt repayment.
EXCHANGE RATE APPRECIATION/DEPRECIATION IN THE REGION RUPIAH APPRECIATION BACKED BY CAPITAL INFLOWS

Source: Bank Indonesia

INTERNATIONAL RESERVES INCREASING

US$ billions Month

150 9
120,7
120 8

90 7
6,3

60 6

30 5

0 4
1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112
Source: Reuters, Data as of 24 January 2019 Source: Bank Indonesia 2016 2017 2018
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Financial System Stability has been Well Maintained as Intermediation Improves
BANK CAPITAL REMAINS HIGH WITH AMPLE THE GROWTH OF CREDIT AND DEPOSIT CONTINUE HIGHER CREDIT & DEPOSIT GROWTH IN 2019 ARE
LIQUIDITY TO IMPROVE CONFIRMED BY BANK’S BUSINESS PLAN
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NON BANK FINANCING REMAINS HIGH CREDIT RISK HAS BEEN WELL MANAGED

November 2018

Gross NPL 2,67% 1,18% Net NPL

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Summary of Indonesia Economic Outlook
Indonesia’s economy in 2018 remained solid albeit potential downside risk stemming from global economy uncertainties. Moving
forward,
Click tothe domestic
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title style

GDP Inflation CAD Credit Deposits

2018 ± 5,1% 3,13% < 3,0% GDP ± 12% ± 8%

2019 5,0-5,4% 3,5%±1% ± 2,5% PDB 10-12% 8-10%

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Three Important Lessons
The economic lessons of 2018 provide invaluable insight into strengthening synergy to bolster resilience and build economic
growth momentum
Click to moving
edit Master title forward
style despite unfavourable global economic dynamics.

• Strive to ensure low inflation, stable Rupiah

1 Strengthen Economic Stability and

Resilience
exchange rates, a small fiscal deficit and
maintained financial system stability.
• Reduce current account deficit to within a
manageable threshold
• Trasform from export commodities based to
manufacturing and tourism, enhancing domestic
production to reduce import, drawing more direct
Improve Our Competitiveness and
2 Productivity in order to Stimulate
Growth Momentum
investment
• Strengthen the national economic structure
through downstream industry in natural resources
• Developing manufacturing industries in the
automotive sector, electronics, textiles and
footwear to increase exports

3 Policy Synergy between the
Authorities is Key to Strengthen The
Structure of The National Economy
• Monetary, fiscal and financial sector policies will
be oriented towards maintaining macroeconomic
and financial system stability.
• Real sector and structural reform policies should
be oriented towards enhancing competitiveness,
productivity, investment, trade, employment, and
legal certainty.
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Bank Indonesia’s Policy Mix Direction for 2019
Bank Indonesia will streghten its policy mix to enhance national economic resiliencies to confront the global
spillover
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editrisks...
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MONETARY MACROPRU- PAYMENT FINANCIAL ISLAMIC

POLICY DENTIAL SYSTEM POLICY MARKET ECONOMIC AND
POLICY DEEPENING FINANCIAL

MAINTANING BUILDING ECONOMIC GROWTH MOMENTUM MOVING FORWARD

STABILITY
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Bank Indonesia’s Policy Mix Direction for 2019 (2)

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Pre-emptive and Ahead-of-the-curve Monetary Policy Stance will be maintained in 2019
 The policy rate will be calibrated in accordance with domestic and global economic
developments to ensure inflation remains under control and rupiah exchange rates are in
line with the currency’s fundamental value.
 Striving towards rupiah exchange rate stability through efficient market mechanisms, while
applying dual intervention policy as required by the markets.

I. MONETARY  Maintaining adequate international reserves.

POLICY  Maintaining adequate liquidity in the money market and banking industry.

Accommodative Macroprudential Policy will be continued to Support Financial System

Stability and Stimulate Banking Intermediation Function
• Periodically review of Macroprudential Intermediation Ratio (MIR) in order to boost credit
growth and simultaneously expand economic funding and financing through offerings of
securities.
• Review of Macroprudential Liquidity Buffer (MPLB) to support flexible liquidity management in
the banking industry.
II. MACRO-
• Accommodative macroprudential policy will also be taken to help strengthen the bank
PRUDENTIAL
intermediation function in terms of MSME and priority sector development, including exports
POLICY and tourism.
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Bank Indonesia’s Policy Mix Direction for 2019 (3)
Click to edit Master title style Payment System Policy is Developed to ensure Efficient, Available and Secure Cash and
Noncash Payment Systems, including support for the Digital Economy and Finance
 On the noncash payment system, BI will continue to develop infrastructure, instruments and
mechanisms for the wholesale and retail systems.
 On the instrument side, BI will encourage the development of electronic money and the use of
financial technology in payment system.
III. PAYMENT SYSTEM  Electronification program will be extended to noncash social assistance disbursements
(bansos), public transportation payments and Government’s financial operations.
POLICY  On the cash payment system, BI will improve the efficiency and reach of currency in
circulation to all regions of the archipelago, including remote and border regions.

Accelerating Financial Market Deepening to Improve Bank Indonesia’s Policy

Effectiveness and Broaden Economic Financing
 In the FX market, BI will encourage the use of spot, swap and DNDF instruments, while
increasing transaction volume, to boost liquidity, efficiency and market conduct when
determining rupiah exchange rates in line with market mechanisms.
 In the money market, BI will increase transaction volume and expand the use of repo
instruments and interest rate swaps (IRS) to augment liquidity, efficiency and market
IV. FINANCIAL conduct in the interbank money market in terms of forming yield curves for various tenors.
MARKET  BI will also continue to participate actively in term of innovating financing instruments for
DEEPENING future infrastructure development.
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Bank Indonesia’s Policy Mix Direction for 2019 (4)
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Promoting Islamic Economic and Financial Development, Unilaterally through Bank

Indonesia Programs as well as through the Programs of the National Committee on
Islamic Finance of the Republic of Indonesia (KNKS)
 Islamic Economic Development:
- Enhancing the capacity of Islamic businesses in the Islamic boarding school
environment through various linkages, including the virtual market.
- Develop the Islamic economy through the halal value chain ecosystem, targeting food,
fashion and tourism, supported by a halal lifestyle campaign.
V. ISLAMIC
 Islamic Financial Market Deepening:
ECONOMIC AND
- Issuance of Bank Indonesia Sukuk (SUKBI) as a tradeable Islamic monetary
FINANCIAL instrument, which will strengthen liquidity management at Islamic banks and support the
DEVELOPMENT long-term development of Islamic financial instruments.
- Supporting the use of zakat and productive waqf for economic financing.
 Education and halal life style campaign:
- Islamic Economic Festival (FeSyar) in three Indonesian cities as well as the
International Islamic Expo and Festival (ISEF).
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Bank Indonesia’s Policy Mix Direction for 2019 (5)
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Expanding MSME Development Program, with a Focus on Controlling Inflation and
Reducing the Current Account Deficit
 Replication of MSME clusters to produce strategic food commodities in various regions, including rice,
red chili, shallots, garlic and beef, to help control inflation.
 Improving and developing MSME clusters targeting handicrafts and household industries in line with
VI. MSME unique local cultures as well as the agricultural sector, such as coffee, with a focus on exports and
tourism.
DEVELOPMENT
 Encouraging BI’s MSMEs to Go Digital and integration with Islamic businesses.
 Increasing MSMEs participation at various national and international exhibition that routinely organized
by Bank Indonesia.

International Policy to Strengthening the Positive Perception of Indonesia and Continue to

Play an Active Policymaking Role at Various International Organizations
 Enhancing bilateral swap arrangements as well as regional financial cooperation in the Chiang Mai Initiative
Multilateralization (CMIM).
 Expanding and strengthening cooperation to use local currencies for trade settlement and investment,
VII. INTERNATIONAL which currently undergoing with Malaysia and Thailand, to include other countries.
POLICY  Strengthening BI’s role in various international organizations and regional cooperation as well as
cooperation with other central banks.
 Enlarging various programs that promote investment and tourism in Indonesia through the Investor
Relations Unit and cooperation with the Government..

A Synergic National Policy Mix
Click toSYNERGIC
edit MasterNATIONAL
title style POLICY MIX
CONTROLLING
1 INFLATION
TPI & TPID focus on “4K Program”
(Available Supply, Affordable Prices,
Smooth Distribution, and Effective
Communication).
IMPROVING ECONOMIC
2 STRUCTURE
Quarterly Coordination Meeting
focus on reducing current
account deficit, investment
financing, particularly for
infrastructure, and development
of digital economy and finance.
3 FINANCIAL SYSTEM
STABILITY
• Crisis prevention and resolution
through KSSK.
• BI’s macroprudential – OJK’s
microprudential policy harmonization.
• BI-LPS coordination.
4 FINANCIAL MARKET
DEEPENING
Financial Market Deepening
Coordination Forum (FK-PPK) that
focus on innovating various
instruments for economic financing
through the financial markets,
infrastructure development and
broadening the investor base, while
ensuring regulatory harmony
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DIGITAL ECONOMY
5 AND FINANCE
 Coordination between
government ministries and
agencies in order to develop
the digital economy and
finance ecosystem
 Coordination between BI and
OJK to ensure that
development of digital finance
in the payment system is
mutually beneficial with
digital finance to boost
financial intermediation in the
economy
 Establishment of National
Committees on development
of digital economy and
finance.
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BI Board of Governors (BOG) Decision on 16th & 17th January 2019

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 BANK INDONESIA’S POLICY MIX:
BALANCING STABILITY AND GROWTH
Mandiri Investment Forum 2019 – Bank Mandiri
30 January 2019
PERRY WARJIYO
Governor