August 25, 2023
JAKARTA – At its latest monthly monetary meeting, which ended on Thursday, Bank Indonesia (BI) decided to keep its benchmark interest rate unchanged for the seventh consecutive month because of global uncertainties.
Briefing the press after the meeting, BI Governor Perry Warjiyo announced that the benchmark seven-day reverse repo rate is to be kept at its current level.
“The decision to maintain the BI 7-Day Repo Rate [BI7DDR] at 5.75 percent is consistent with the monetary policy to ensure that inflation falls into the target range,” said Perry.
The central bank’s consumer price index (CPI) target for this year is 3 plus/minus 1 percent. For 2024, it is set to 1.5 to 3.5 percent.
Statistics Indonesia (BPS) revealed earlier this month that annual growth of the CPI was 3.08 percent in July, down from 3.52 percent in June.
Following months of high price pressure, inflation in Indonesia has remained within the BI range since May, when the CPI grew at exactly 4 percent.
The latest economic growth figures have also been solid as the country beat expectations with second-quarter GDP growth of 5.17 percent, as revealed by BPS on August 7.
Overall economic conditions are not without risks though, given the economic slowdown in China, Indonesia’s main trade partner. However, Perry said that the archipelago’s economy remained solid, driven by domestic spending, and that the central bank was not going to respond by cutting rates just yet.
BI is currently working off a baseline scenario of the United States Federal Reserve raising its federal funds rate by 25 basis points once more this year in September.
Because of the pressure that US rate hikes could put on the rupiah’s value, BI says it is focusing on keeping the currency stable and has indicated that it has no plans of changing the BI7DDR until at least the end of this year.
Forex time deposits gaining traction
In the briefing, BI also noted that foreign exchange time deposits had begun to gain traction in response to new rules mandating that commodity firms keep their export receipts (DHE) within the country.
BI has launched seven financial instruments for that purpose.
BI Deputy Governor Aida Budiman said in the same briefing that DHE time deposits had started to show “signs of upswing”.
She said the deposits had doubled since the instatement of Government Regulation No. 36/2023, effective since August 1.
One of the instruments prepared by BI is allowing export earnings to be stored in a special time deposit account to be used as collateral for credit in rupiah and for currency swaps, should exporters need rupiah in their accounts.
As an incentive, the central bank offered competitive rates for exporters’ deposits, designed to be higher than those offered by foreign banks.
The government also offers much lower tax rates on export receipts held in the country than typical time deposits, which were taxed at around 20 percent.
Month-long foreign earnings time deposits are taxed at 10 percent, but the rate drops to 2.5 percent for tenors of six months and to zero for tenors longer than six months.
The Finance Ministry offers even lower tax rates if exporters convert their earnings to rupiah, she said, such as a 7.5 percent tax on month-long deposits and no tax at all for tenors of six months or more.
Other products include foreign currency promissory notes, which can be used for swaps and debt collateral.