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ASEAN-JAPAN Centre
Tokyo, December 13th 2016
Central Bank Policy in Support of Stability & Growth1
1
2
Macroeconomic performance: GDP Balance of Payments Inflation and Exchange Rate Financial Intermediation Market Risks Capital Market
BANK INDONESIA Policy Mix: Managing Non-Bank Corporation External Debt Obligation to use Rupiah Domestically Relaxing LTV and FTV Lines of Defense through Cooperation Redefining Policy Rate Comprehensive Financial Deepening Program
2
Growth Momentum Continues
By expenditure 2014 2015 2016
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
HH. consumption5.3 5.1 5.1 5.1 5.0 5.0 5.0 4.9 4.9 5.0 5.0
Non profit HH. consumption
23.2 22.4 5.8 (0.5) (8.1) (8.0) 6.6 8.3 6.4 6.7 6.7
Government consumption
6.1 (1.8) 1.2 0.9 2.9 2.6 7.1 7.3 2.9 6.3 (3.0)
Investment 5.2 4.1 4.5 4.6 4.6 3.9 4.8 6.9 5.6 4.6 4.1
Exports 3.2 1.4 4.8 (4.6) (0.6) 0.0 (0.6) (6.4) (3.9) (2.7) (6.0)
Imports 5.0 0.4 0.3 3.2 (2.2) (7.0) (5.9) (8.1) (4.2) (3.0) (3.9)
GDP 5.1 5.0 5.0 5.0 4.7 4.7 4.7 5.0 4.9 5.2 5.0
GDP Growth Based on Expenditures
GDP growth by sectors (YoY) (%)
2014 2015 2016
Q1 Q2 Q3 Q4 Yearly Q1 Q2 Q3 Q4 Yearly Q1 Q2 Q3
Agriculture, forestry, and fishery 5.2 4.9 3.6 3.3 4.2 4.0 6.9 3.3 1.6 4.0 1.8 3.4 2.8
Mining (1.0) 1.1 1.2 1.5 0.7 (1.3) (5.2) (5.7) (7.9) (5.1) (0.8) (0.1) 0.1
Industrial processing 4.5 4.8 5.0 4.2 4.6 4.0 4.1 4.5 4.4 4.2 4.6 4.7 4.6
Construction 7.2 6.5 6.5 7.7 7.0 6.0 5.4 6.8 8.2 6.6 7.9 6.2 5.7
Big traders, wholesale,retail 6.1 5.0 5.2 4.5 5.2 4.1 1.7 1.4 2.8 2.5 4.0 4.0 3.7
Transportation and warehousing 7.0 7.6 7.7 7.2 7.4 5.8 5.9 7.3 7.7 6.7 7.9 6.9 8.2
Information and communication 9.8 10.5 9.8 10.3 10.1 10.1 9.7 10.7 9.7 10.1 8.1 9.9 9.2
Financial service and insurance 3.6 5.5 1.9 7.9 4.7 8.6 2.6 10.4 12.5 8.5 9.3 13.6 8.8
Other 5.4 4.7 5.9 6.5 5.7 5.1 6.5 5.0 5.9 5.6 6.0 5.4 4.3
GDP 5.1 5.0 5.0 5.0 5.0 4.7 4.7 4.7 5.0 4.8 4.9 5.2 5.0
Contributors to GDP growth by Sector
%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2014 2015 2016 Source: Central Bureau of Statistics of Indonesia (BPS)
3
Structurally Stronger External Outturns
Strong Balance of PaymentsUS$bn US$bnUS$bn
0
20
40
60
80
100
120
140
160
-20
-15
-10
-5
0
5
10
15
20
Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1* Q3* Q1* Q3*
2010 2011 2012 2013 2014 2015* 2016**
Current Account Capital & Financial Account
Overall Balance Reserve Assets (RHS)
-15
-10
-5
0
5
10
15
Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1* Q3* Q1* Q3*
2011 2012 2013 2014 2015* 2016**
Goods Services Income Secondary Inc. Current Acc.
Source: Bank Indonesia-2.5-2.0-1.5-1.0-0.50.00.51.01.52.02.5
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10
2014 2015 2016
Non-OG OG Total
US$bn Trade Surplus Continues
Narrowing Current Account DeficitUS$bn
115.7
9.4
5.7
(4.5)
(1.5)
3.9
1.0
(4.5)(7.9)
4
Inflation is under control
-1
4
9
14
19
1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10
2011 2012 2013 2014 2015 2016
CPI (%, yoy) Core (%, yoy)
Volatile Food (%, yoy) Administered (%, yoy)
Stable Rupiah Value
Source: Bank Indonesia
IDR/US$Exchange rate volatility is manageable
5
Credit is supportive to growth
4.2%6.5%
9.1%
YoY
0%
5%
10%
15%
20%
25%
30%
35%
40%
1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9
2013 2014 2015 2016
Total Growth Working Capital loansInvestment Loans Consumption Loans
8.0%
Financial Intermediation is Supporting Growth
NPL in the banking sector remains low
Banking’s CAR is suffciently high
Profitability of the banking sector is stable
6
Net open position in the banking sector is far below the maximum requirement (20%)
Investment value of Insurers & Pension Funds continues to expand
Multifinance companies’ exposures to foreign debt have generally been mitigated through hedging measures
Mutual funds’ net asset value (NAV) is in line with the stock market index, with much lower volatility
Manageable Risk Amidst Fluctuations
7
Source: Bloomberg, IBPA, Indonesia Stock Exchange, Ministry of Finance
Both the stock & bond indices demonstrated a strengthening index in 2016
In line with the stabilizing IDR and improving domestic prospects, the government bond yield continues to decline
The IDX Composite Index is among the best-performing indices (ytd) in the region
Capital Market Demonstrate Strengthening Trend
Capital Markets Demonstrate Strengthening Trend
Yield (%)IDR tn
Despite uncertain external factor, favorable domestic environment attracts nonresident inflow especially in Q3
8
(US$bn)
Private Sector External Debt(US$bn)
0
50
100
150
200
250
300
350
0
50
100
150
200
250
300
2005 2007 2009 2011 2013 2015* Feb2016*
Apr2016*
Jun2016*
Aug2016*
Public (Govt. & BI) Private Total (RHS)Total FCY Debt:
US$325.3 bn
Private Sector FCY Debt: US$163.1
bn
Source: Bank Indonesia
Regulation Key PointsPhase 1
Jan 1,2015 –Dec 31,2015
Phase 2Jan 1,2016
–Dec
31,2016
Phase 3Jan 1, 2017 and beyond
Object of Regulation Governs all Foreign Currency Debt
Hedging Ratio
< 3 months 20% 25%
> 3 – 6 months 20% 25%
Liquidity Ratio ( < 3 months) 50% 70%
Credit Rating Not applicable Minimum rating of BB-
Hedging transaction tomeet hedge ratio
not necessarily be done with a bank in Indonesia
Must bedone with a
bank in Indonesia
Sanction As of Q IV-2015 Applied
Prudent External Debt Management Oct 2014, Non-bank corporations holding external debt required to fulfil:
Minimum hedging ratio in order to mitigate currency risk
Minimum forex liquidity ratio to mitigate liquidity risk
Minimum credit rating to mitigate overleverage risk
Regulation update in Dec 2014 including among others: broadening coverage of components of FX Assets and Liabilities, extension of credit rating’s status validity period
1. Managing Non-Bank Corporations’ External DebtPrudent External Debt Management, Key Points
9
2. Obligation to use Rupiah for Domestic TransactionTransactions among residents in foreign currency through domestic foreign exchange banks subsides
*) preliminary **) very preliminaryNote: excluding transaction with central bank, forex trade, depocits, overbooking transaction, transaction under threshold (USD10,000)
10
3. Relaxing Loan to Value Ratio
Housing Loans (Mortgage) and Housing Financing Based on Murabahah and Istishna
Property type (m2)
Lending/Financing Facility
First Second Third
House
>70 m2 85% 80% 75%
22 - 70 m2 - 85% 80%
<21 m2 - - -
Apartment
>70 m2 85% 80% 75%
22 - 70 m2 90% 85% 80%
<21 m2 - 85% 80%
Home Shop/Office - 85% 80%
Housing Financing Based on MMQ and IMBT Contracts
Property type (m2)
Lending/Financing Facility
First Second Third
House
>70 m2 90% 85% 80%
22 - 70 m2 - 90% 85%
<21 m2 - - -
Apartment
>70 m2 90% 85% 80%
22 - 70 m2 90% 85% 80%
<21 m2 - 85% 80%
Home Shop/Office - 85% 80%
Effective from August 29th, 2016, Bank Indonesia relaxed the Loan to Value Ratio (LTV) and for Sharia Financing to Value Ratio (FTV) on mortgage
11
FX Reserve Ample of level of FX reserves to buffer against external shock FX Reserves as of October 2016: US$115.0 billion
South Korea Established a 3 year KRW/IDR swap arrangement with the size of up to 10.7 trillion KRW / IDR 115 trillion in March 2014
Australia Exchange of local currencies between the two central banks of up to A$10 billion or IDR 100 trillion Effective as of December 15, 2015. The effective period will be three years, and could be extended by mutual consent of both
sides
First Line of Defence
Second Line of Defence
BI’s Existing Bilateral Currency Swap Arrangement (BCSA)
* In addition to the above facilities, Indonesia is entitled to access IMF facilities for crisis prevention to address potential (actual) BOP problem as part of IMF’s Global Financial Safety Net (GSFN) initiative. Such facilities include Flexible Credit Line (FCL) and Precautionary and Liquidity Line (PLL)
Japan US$ 22.76 billion swap line with the Bank of Japan currently in place The quantum of the swap line was increased from US$12 billion in December 2013
Chiang Mai Initiative
Multilateralization (CMIM)
Agreement
Entitled to a maximum swap amount of US$ 22.76 billion under the ASEAN+3 (Japan, China, and Korea) FX reserves pool created under the agreement
Came into effect in 2010 with a pool of US$120 billion Doubled to US$ 240 billion effective July 2014
Source: Bank Indonesia
4. Lines of Defense Against External Shocks
12
Bank Indonesia will enhance the monetaryoperations framework that is supported by thedeepening of the financial markets in order tostrengthen the transmission of monetary policy.
BI RATE
BI Rate reflects monetary policy stance as atool to anchor economic agent’ inflationexpectations
BI Rate is used as a benchmark interest ratefor transactions in financial markets andeventually to influence general interest rate
BI Rate effectively affect banking interestrate
Excess liquidity due to massive capitalinflows post 2008 global financial crisis drawdown overnight interbank rates around DFRate. Meanwhile, the BI rate is currentlyaround 9-12 months OM instrument.
The shallow financial markets also inhibit thetransmission of monetary policy.
CHALLENGES
ENHANCEMENT
BI rate as reference rate
Challenges: Transmission of monetary policy is less effective
Enhancement of monetary operations framework
12 months (equivalent)
7 days
Non-Transactional
Transactional (Central Bank)
Not optimally reflected in money
market interest rates
Stronger relationship to the money market interest rates
Cost of being illiquid is lower, support financial deepening
BI rate BI 7-day repo rateOMO term structure
Character
Transmission
Financial DeepeningCost of being illiquid is too high, does not
support financial deepening
5. Redefining The Policy Rate as Anchor
13
Financial Market Deepening Program
First Priority:Continuous Basis Market Development Coordination
Monitoring, match making, and
solution:• Repo
• Hedging
Money Market• Bank Indonesia Regulation (PBI) on Money Market
Encourage well-functioning money market (deep and efficient, risk mitigation, and market integrity),• Bank Indonesia Regulation (PBI) on Negotiable Certificate of Deposit (NCD)
Enrich money market instruments, encourage banks to raise long term funding, and acts as an alternative investment for investors• Bank Indonesia Regulation (PBI) on Commercial Paper
Alternative sources of financing for non-bank corporations, as well as an investment outlet for investorsFX Market• Swap Link Deposit
a combination of foreign currency deposits with FX Swap against the rupiah.• Dual Currency Deposit
a combination of assets (deposits) and derivatives (FX Options).
• Corporate Bonds• Government
Bonds• Other instruments
Supporting Regulations
Market Code of Conduct Certification of DealerStrengthening JIBOR
• More comprehensive code of conduct • The use of technology and public security
• Obligation on certification for dealers• Dealers’ training for certification
• Extension of window time• Increase in IDR nominal
• Lengthening tenor of up to 3 months
Inter-agency CooperationSigning of MoU on April 8th, 2016, between MoF, BI, and OJK on Coordination in the Context of Financial Markets
Development and Deepening to Support National Development Financing
This MoU is driven by the need for:• Sufficient development financing,• Financial markets deepening, and
• Good coordination among related institutions
6. Comprehensive Financial Deepening Program
14
The BI Board of Governors agreed on 17 November 2016 to hold the BI 7-days Repo Rate at 4.75%, as well as the Deposit Facility at 4.00% and cut the Lending Facility rates to 5.50%
Holds the BI 7-day Repo
Rate at4.75%
Convinces that the transmission of
looser monetary and macroprudential
policies will continue and boost credit as
well as other financing growth to support stronger economic growth moving forward
Remains vigilant towards global developments, recovery signs ofUS economy and the possibilty of Federal Funds Rate (FFR) hike,
limited growth in advanced countries including the European
Union (EU), the possibility of China and India to drive the
global economy, also the continuation of the international commodity prices improvement
Continues to coordinate with the Government
with a focus on safeguarding supply
and distribution, especially of the basic
necessities, while managing inflation
expectations
Maintainsexchange rate stability in line
with the currency’s
fundamental value by
maintating market mechanisms.
Believes more muted growth in
the fourth quarter, in line with fiscal consolidation, at around 5% and projects for the
expanding growth in the 5.0-5.4% range in 2017.
Bank Indonesia: Most Recent Policy
15
16
Enhancement of Reserve Requirement RatioImplementing Reserve Requirement Averaging in 2017
For further inquiries: Rahmat Hernowo (Mr.) , Deputy Director, Bank Indonesia,
Representative Office for East Asia, Tokyo
Email address : rachmad.h@bi.go.id
THANK YOU17
3.03.54.04.55.05.56.06.57.07.58.0
Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Okt-16 Nov-16LF Rate BI Rate BI-7Day RR Rate DF Rate
19 August 2016
LF rate 7.00
LF rate 5.50
DF rate 4.50BI7RR rate 4.75
BI rate 6.50
DF rate 4.00
BI7RR rate 5.25
Appendix: Redefining The Policy Rate as Anchor
Overnight Interbank Market (PUAB) Rates
BI 7RR Rate
18
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