The Board of Governors Meeting of Bank Indonesia (RDG BI) decided to lower the benchmark interest rate (7 Days Reverse Repo Rate / 7DRR) by 25 basis points (bps) from 3.75 percent to 3.5 percent in February 2021.

Likewise, the deposit facility and lending facility rates fell 25 bps to 2.75 percent and 4.25 percent, respectively.

"The meeting of the Board of Governors of Bank Indonesia on February 17-18, 2021 decided to reduce the BI 7DRR by 25 bps to 3.5 percent," said BI Governor Perry Warjiyo at a virtual press conference on the results of the BI Board of Governors Meeting for February 2021, Thursday 18/2).

According to Perry, the decision to cut the benchmark interest rate this month considers global and national economic and financial conditions. Globally, he said that the economic recovery is expected to improve due to vaccinations in various countries.

"The recovery in developed countries will be supported by the United States, while in developing countries in China and India," he explained.

Also, economic indicators in various countries have improved; for example, the PMI and retail indices improve in the US, China, and India. These positive indicators make the global economy expected to increase to 5.1 percent this year from the initial projection of 5 percent.

Another indication is that exports are improving in various countries, including Indonesia. Then, the uncertainty over financial markets began to ease, and loose monetary policy continued, thereby strengthening multiple countries' currencies, including Indonesia.

From within the country, considerations arise from national vaccination programs. Apart from that, the decision also considers weak private consumption and public mobility.

The national central bank views this as a result of the Indonesian economy still contracting in the fourth quarter, but signs of recovery will continue. The export performance of palm oil, coal, and manufacturing, such as organic chemicals, motorized vehicles, and footwear, saw an improvement.

This condition caused the central bank to lower the projection of Indonesia's economic growth in 2021. Initially, the forecast was 4.8 percent to 5.8 percent, and now it has become 4.3 percent to 5.3 percent.

Even so, Perry said that the flow of foreign capital continued to enter the country. BI recorded that net capital inflow reached US$8.5 billion from January 1 to February 16, 2021.

Meanwhile,  Indonesia's foreign exchange reserves reached US$138 billion, or the equivalent of 10.5 months of imports last month. But, BI keeps the Current Account Deficit (CAD) projection of 1 percent to 2 percent of GDP in 2021.

Furthermore, the rupiah exchange rate has strengthened 0.22 percent on average and 0.07 percent on a point-to-point basis in February from last January.

"This happened because of the decrease in global uncertainty and the improvement in the domestic economic prospects," said Perry.

BI views that the strengthening of the rupiah will continue because the current level is still undervalued. A low current account deficit, quiet and controlled inflation, high attractiveness of domestic assets, and a lower risk premium, as well as large global liquidity, have supported the stronger rupiah. 

For inflation, BI sees the rate will still be low this year with a target of 2-5 percent.

"This takes into account the impact of inflation from the declining rupiah exchange rate," said Perry.

Not only on the macro side, but BI also considers various national financial indicators. In particular, those that are related to large liquidity.

Liquidity injections support this condition through quantitative easing (QE) from BI, reaching Rp750.38 trillion or 4.86 percent of GDP.

"This is one of the biggest in emerging markets," he said.

The injection is also in purchasing Government Securities to finance the State Budget, reaching Rp40.77 trillion from January 1 to February 16, 2021.

Furthermore, ease liquidity is also reflected in Liquid Assets' ratio to Third Party Funds (AL / TPF) of 31.64 percent. Then, the growth in deposits reached 10.57 percent in the same period.

Then, the bank's Capital Adequacy Ratio (CAR) was 23.81 percent. The ratio of non-performing loans (NPL) was 3.06 percent (gross) or 0.98 percent (net).

BI also recorded an average interbank money market interest rate of 3.04 percent, deposit interest rate of 4.27 percent, and working capital credit of 9.7 percent.

Meanwhile, bank loan growth contracted 1.92 percent. This condition made BI revise its loan growth target for this year from 7 percent to 9 percent to 5 percent to 7 percent.