Bank Indonesia: Indonesia's Economic Growth Contracts, The Lowest In May 2020

JAKARTA - Bank Indonesia predicts that national economic growth in the second quarter of 2020 is predicted to experience contraction, with the lowest level in May 2020. This development is influenced by the domestic economic contraction in April-May 2020 in line with the impact of the Large-Scale Social Restrictions (PSBB) policy to prevent the spread. the COVID-19 pandemic.

Head of the BI Communication Department Onny Widjanarko said BI also predicted that the world economic recovery would take longer than previously estimated, in line with the continuing global economic contraction.

"This condition is driven by an increase in the spread of COVID-19 in several countries and the mobility of economic actors that has not returned to normal in line with the implementation of health protocols," said Onny in his statement, Monday, July 20.

This development has limited the effectiveness of the various policy stimuli that have been taken to promote economic recovery in many countries. Onny said that in line with weaker global demand, world trade volume and commodity prices were also lower than previously estimated and lowered global inflationary pressure.

"In addition, global financial market uncertainty has also increased due to the slow pace of global economic recovery and the resurgence of US-China geopolitical tensions," Onny explained.

However, Onny conveyed that developments in June 2020 showed that the economy had begun to improve along with the relaxation of the PSBB, even though it had not returned to the level before the COVID-19 pandemic.

"These developments are accompanied by sound external economic resilience, low inflation, and maintained financial system stability and smooth payment system," he said.

To support the acceleration of economic recovery, on 15-16 July 2020, BI decided to lower the BI 7-Day Reverse Repo Rate (BI7DRR) by 25 basis points (bps) to 4 percent, the deposit facility interest rate by 25 bps to 3.25 percent, and lending facility interest rate of 25 bps to 4.75 percent.

This decision is consistent with the predicted low inflation, maintained external stability, and as further steps to promote economic recovery during the Covid-19 pandemic.

Onny added, BI is strengthening its interest rate policy with four policy mix steps. First, to continue the rupiah exchange rate stabilization policy in accordance with the fundamental value and market mechanisms.

Second, strengthening the synergy of monetary expansion with accelerated government fiscal stimulus through measured purchases of SBN from the primary market and sharing the burden with the government to accelerate the recovery of MSMEs and corporations.

Third, strengthen coordination of policy steps with the government and the KSSK to maintain macroeconomic and financial system stability. Fourth, accelerating the digitalization of the payment system to accelerate the implementation of the digital economy and finance as part of economic recovery efforts.