Eurobank While Trading at 0 27x Tbv the Recovery Continues

​ The BI Board of Governors Meeting agreed on 23 ^th and 24 ^th May 2022 to hold the BI 7-Day Reverse Repo Rate at 3.50%, while also maintaining the Deposit Facility (DF) rates at 2.75% and Lending Facility (LF) rates at 4.25%. The decision is consistent with the need to manage inflation and maintain exchange rate stability, while continuing to foster economic growth amid escalating external pressures stemming from the geopolitical tensions between Russia and Ukraine as well as faster monetary policy normalisation in several advanced and developing economies.  Therefore, Bank Indonesia is bolstering its policy mix as follows:

1. Strengthening exchange rate policy to maintain Rupiah stability in line with market mechanisms and economic fundamentals.
2. Accelerating liquidity policy normalisation by incrementally raising Rupiah reserve requirements as follows (Appendix 1):
   1. Bank Indonesia will raise the Rupiah reserve requirements for conventional commercial banks from 5.0% currently to 6.0% on 1^st June 2022, to 7.5% on 1^st July 2022 and to 9.0% on 1^st September 2022.
   2. Bank Indonesia will raise the Rupiah reserve requirements for sharia banks and sharia business units from 4.0% currently to 4.5% on 1^st June 2022, to 6.0% on 1^st July 2022 and to 7.5% on 1^st September 2022.
   3. Bank Indonesia will provide 1.5% remuneration to banks fulfilling reserve requirements obligations after taking into account the incentives for banks disbursing loans/financing to priority sectors and MSMEs and/or meeting the target Macroprudential Inclusive Financing Ratio (RPIM).
   4. The higher reserve requirements will not affect the banking industry's ability to disburse loans/credit to the corporate sector or purchase SBN to fund the State Revenue and Expenditure Budget (APBN).
3. Increasing incentives for banks disbursing loans/financing to priority sectors and MSMEs and/or meeting the target Macroprudential Inclusive Financing Ratio (RPIM) from 1^st September 2022 as follows (Appendix 2):
   1. Relaxing statutory reserve requirements (SRR) by a maximum of 2%, namely through an incentive for disbursing loans/financing to priority sectors up to a maximum of 1.5% from 0.5% previously, with the maximum incentive for achieving the target RPIM remaining at 0.5%.
   2. Expanding the scope of priority subsectors from 38 to 46 across three categories, namely resilient sectors, growth drivers and slow starters.
   3. The incentives aim to increase the banking industry's contribution to inclusive financing and the national economic recovery.
   
   
4. Maintaining prime lending rate transparency in the banking industry with a focus on lending rates for priority sectors (Appendix 3).
5. Maintaining support for MSME development through the Karya Kreatif Indonesia (KKI) expo to support the economic recovery, including the National BBI Movement promoting pride in Indonesian-made products and Proud to Travel in Indonesia Movement (GBWI).
6. Strengthening payment system policy to reinforce economic recovery and accelerate inclusive digitalisation by:
   1. Extending the grace period on a minimum credit card payments and late fees from 30^th June 2022 previously to 31^st December 2022 to support credit card transactions while mitigating credit risk.
   2. Extending the 0% QRIS merchant discount rate (MDR) for micro merchants from 30^th June 2022 previously to 31^st December 2022 to continue efforts to expand the digital ecosystem and boost transactions, particularly amongst MSMEs.
   
   
7. Strengthening international policy by expanding cooperation with other central banks and authorities in partner countries, promoting trade and investment in priority sectors in synergy with the relevant institutions as well as ensuring the success of the six priority agendas in the Finance Track of Indonesia's G20 Presidency in 2022 in conjunction with the Ministry of Finance.

Bank Indonesia constantly monitors inflation developments and institutes the measures necessary to manage inflation within the predetermined 3.0%±1% target corridor set for 2022 and 2023.  Towards that end, synergy with the central and regional governments through national and regional inflation control teams (TPIP and TPID) is constantly strengthened.  Seeking to maintain macroeconomic stability and accelerate the national economic recovery, Bank Indonesia continues to build monetary and fiscal policy coordination with the Government, while remaining committed to purchasing SBN totalling Rp224 trillion in 2022 to fund the health and humanitarian budgets in the State Revenue and Expenditure Budget (APBN).  Similarly, coordination under the auspices of the Financial System Stability Committee as well as bilateral coordination between Bank Indonesia and the Financial Services Authority (OJK) are continually strengthened to maintain financial system stability.

The global economic recovery remains intact but at risk of slowing, accompanied by rising inflation and faster monetary policy normalisation in various jurisdictions.  Escalating geopolitical tensions between Russia and Ukraine, strict implementation of China's zero-Covid policy and faster monetary policy normalisation in various countries is weakening the global economic recovery.  Economic growth in various jurisdictions, including Europe, United States (US), Japan, China and India, is at risk of falling below the previous projection.  World trade volume is also potentially lower than previously forecast in line with the risk of subdued global economic improvements and ongoing global supply chain disruptions.  International commodity prices continue to rise, including energy, food and metals, thus intensifying inflationary pressures globally.  In response to higher global inflation, several advanced and developing economies, including the US, are accelerating monetary policy normalisation, thus exacerbating global financial market uncertainty.  Such conditions are restricting foreign capital flows and increasing currency pressures in developing economies, including Indonesia.

At home, the domestic economic improvements have endured on the back of stronger domestic demand and persistently solid exports.  Economic growth in the first quarter of 2022 was strong at 5.01% (yoy), thus maintaining recovery momentum from the previous quarter, when growth was recorded at 5.02% (yoy).  Such developments were primarily explained by increasing household consumption and building investment as well as maintained export performance given greater community mobility and solid demand in Indonesia's major trading partners.  Most economic sectors are also contributing to domestic economic growth, including the manufacturing industry, wholesale and retail trade as well as transportation and storage.  Spatially, all regions of Indonesia recorded positive economic growth, led by Sulawesi-Maluku-Papua (Sulampua), followed by Java, Sumatra, Bali-Nusa Tenggara (Balinusra) and Kalimantan.  In the second quarter of 2022, various early indicators point to further economic improvements, including positive retail sales growth, an expansionary Manufacturing Purchasing Managers Index (PMI) as well as high export and import realisation, supported by greater mobility and financing disbursed by the banking industry.  Economic growth for 2022, therefore, is expected to remain within the Bank Indonesia projection of 4.5-5.3%.

Indonesia's Balance of Payments (BOP) remains solid, thereby supporting external sector resilience.  BOP performance in the first quarter of 2022 was underpinned by a positive current account together with a narrower capital and financial account deficit compared with conditions in the previous period.  The current account amassed a USD0.2 billion surplus (0.07% of GDP) in the first quarter of 2022, supported by a persistent non-oil and gas trade surplus given soaring international export commodity prices.  The capital and financial account deficit reduced to USD1.7 billion in the reporting period in line with investor optimism concerning the promising domestic economic recovery outlook and conducive investment climate.  In April 2022, the trade surplus increased to USD7.6 billion from USD4.5 billion one month earlier.  Meanwhile, foreign capital inflows to domestic financial markets were restrained in response to elevated global financial market uncertainty, as reflected by a net outflow of portfolio investment in the second quarter of 2022 (as of 20^th May 2022) totalling USD1.2 billion.  Notwithstanding, the position of reserve assets at the end of April 2022 stood at USD135.7 billion, equivalent to 6.9 months of imports or 6.7 months of imports and servicing government external debt, which is well above the 3-month international adequacy standard.  Moving forward, a manageable current account deficit is projected in the 0.5-1.3% of GDP range, thus supporting external sector resilience in Indonesia.

The Rupiah succumbed to depreciatory pressures in line with other regional currencies as global financial market uncertainty increased.  As of 23^rd May 2022, the Rupiah depreciated 1.20% on the level recorded at the end of April 2022.  Rupiah depreciation stems from foreign capital outflows as a corollary of elevated global financial market uncertainty despite maintained domestic foreign exchange supply and the positive perception surrounding Indonesia's economic outlook.  Consequently, the Rupiah as of 23^rd May 2022 experienced 2.87% depreciation on the level recorded at the end of 2021, which is comparatively lower than the currency depreciation experienced in several other developing economies, such as India (4.11%), Malaysia (5.10%) and South Korea (5.97%).  Looking ahead, the value of the Rupiah is expected to remain stable in line with solid economic fundamentals in Indonesia, particularly the lower current account deficit and sustained forex supply from the corporate sector.  Bank Indonesia will continue to strengthen Rupiah stabilisation policy in line with market mechanisms and economic fundamentals.

Inflation remains under control and continues to support economic stability. The Consumer Price Index (CPI) in April 2022 recorded 0.95% (mtm) inflation or 3.47% (yoy) annually, up from 2.64% (yoy) one month earlier in line with rising international commodity prices, greater community mobility and seasonal trends during the recent national religious holidays (HBKN).  Core inflation remains under control amid increasing domestic demand, maintained exchange rate stability and policy consistency by Bank Indonesia to anchor inflation expectations.  Meanwhile, volatile food inflation has increased, primarily edged upwards by cooking oil after the maximum retail price (HET) was adjusted.  Inflationary pressures on administered prices were impacted by airfares, petrol and household fuel prices.  Looking ahead, inflationary pressures are expected to persist in line with international commodity prices.  Bank Indonesia continues to monitor the impact on inflation expectations and institutes the measures necessary to safeguard inflation stability moving forward.  Bank Indonesia will also strengthen policy coordination with the Government through national and regional inflation control teams (TPIP and TPID) to maintain CPI inflation within the target, namely 3.0%±1%.

Bank Indonesia continues to normalise liquidity policy by incrementally raising Rupiah reserve requirements without disrupting liquidity conditions in the banking industry.  Phase 1 of the higher Rupiah reserve requirements and the RR incentive introduced on 1^st March 2022 has not eroded the banking industry's ability to disburse loans/financing to the corporate sector or purchase SBN to fund the State Revenue and Expenditure Budget (APBN). In April 2022, the ratio of liquid assets to third-party funds remained high at 29.38%, supporting the banking industry's ability to disburse loans, with credit growth expanding 9.10% (yoy) in the reporting period.  Ample liquidity was maintained on the back of strong 10.11% (yoy) deposit growth.  Meanwhile, through fiscal-monetary coordination in accordance with the Joint Decree of the Minister of Finance and Governor of Bank Indonesia, effective until 31^st December 2022, Bank Indonesia has continued to purchase SBN in the primary market to fund the national economic recovery as part of the State Budget in 2022 totalling Rp30.17 trillion (as of 23^rd May 2022) via primary auction, greenshoe options and private placement.  In April 2022, liquidity in the economy remained ample, as reflected by narrow money (M1) and broad money (M2) aggregates, which grew 20.76% (yoy) and 13.60% (yoy) respectively.

The banking industry continues to lower interest rates in line with lower credit risk. In the markets, the IndONIA rate was fairly stable on 27^th April 2022 at 2.81% compared with 2.79% in April 2021, while the 1-month deposit rate fell 80bps from April 2021 to 2.86% in April 2022.  In the credit market, the banking industry continued to lower lending rates on new loans, falling 43bps (yoy) in the same period, in line with decreasing prime lending rates (PLR) and improving risk perception as economic activity continues to recover.  The banking industry maintained its financing support for priority sectors by offering comparatively lower lending rates than to non-priority sectors.  Nonetheless, Bank Indonesia still acknowledges an opportunity for the banking industry to increase lending/financing, including through lower lending rates, to hasten the national economic recovery.

Financial system resilience remains solid, accompanied by a gradual revival of the bank intermediation function.  The Capital Adequacy Ratio (CAR) in the banking industry remained high in March 2022 at 24.79%, with persistently low NPL ratios of 2.99% (gross) and 0.84% (nett).  Bank intermediation continued to improve in April 2022, with credit growth accelerating significantly to 9.10% (yoy), affecting all bank groups as well as most loan segments and economic sectors, as corporate and household activity gained recovery momentum.  On the supply side, the banking industry relaxed lending standards further, primarily in the trade, manufacturing and agricultural sectors in line with lower credit risk perception.  On the demand side, the corporate recovery remains intact, as confirmed by improving sales, repayment capacity and capital expenditures (CapEx).  In addition, MSME loan growth increased to 16.75% (yoy) in April 2022.  In synergy with the Government, Bank Indonesia has organised Karya Kreatif Indonesia (KKI) 2022 from 26-29^th May 2022 to accelerate the post-pandemic MSME recovery.

Bank Indonesia continually strengthens payment system digitalisation to nurture economic inclusion in the context of economic recovery.  Digital economic and financial transactions are developing rapidly in line with greater public acceptance and growing public preference towards online retail as well as the expansion and convenience of digital payments and digital banking.  The value of electronic money transactions grew 50.3% (yoy) in April 2022 to reach Rp34.3 trillion and the value of digital banking transactions soared 71.4% (yoy) in the same period to reach Rp5,338.4 trillion.  Meanwhile, the value of ATM card, debit card and credit card transactions expanded 12.5% (yoy) to Rp764.5 trillion.  Bank Indonesia collaborates in synergy and strengthens coordination with regional governments through the National Working Group to Accelerate and Expand Local Digitalisation (P2DD) and Regional Digitalisation Acceleration and Expansion Teams (TP2DD) to support the corresponding Championship program.  In terms of cash, currency in circulation expanded 23.2% (yoy) in April 2022 to reach Rp1,039.1 trillion.  Meanwhile, Bank Indonesia continues to ensure the availability of quality Rupiah currency fit for circulation throughout the territory of the Republic of Indonesia, including institutional cooperation to distribute Rupiah banknotes and coins to 3T (outlying, frontier, remote) regions, while safeguarding an orderly and seamless inflow of currency after the Eid-ul-Fitr festive period 1443H.

Bank Indonesia is also accelerating BI-FAST implementation by expanding the number of participants, increasing the range of payment channels, specifically mobile banking, and providing alternative infrastructure according to the capacity of participants. Since 23^rd May 2022, the number of BI-FAST participants has increased by seven banks, with an additional bank planned for the third week of June 2022, all of which are part of the third batch of participants (Appendix 4), bringing the total to 52 and representing 82% of the national retail payment system.  Moving forward, Bank Indonesia will continue to strengthen policy synergy and BI-FAST implementation with industry players to accelerate the economic recovery and revive growth, including economic and financial inclusion.

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Source: https://www.bi.go.id/en/publikasi/laporan/Pages/Tinjauan-Kebijakan-Moneter-Mei-2022.aspx

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