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NPM : 14212855 KELAS : 1EA18


The effect of monetary policy will first be felt by the banking sector, which is then transferred to the real sector. Monetary policy is essentially a policy that aims to achieve internal balance of high economic growth, price stability, equitable development and external balance (balance of payments) as well as the achievement of macroeconomic objectives, namely to stabilize the economy can be measured by employment, stability price as well as a balanced international balance of payments. If the stability in economic activity is interrupted, then monetary policy can be used to recover stability. To achieve this goal, the Bank seeks to regulate the balance between the supply of money in inventory that inflation can be controlled well, the achievement of full employment and fluency in the supply / distribution of goods. Monetary policy is conducted in the interest rate instrument, statutory reserves, and foreign exchange market intervention as a last resort for banks to borrow money when experiencing liquidity problems. 1.BankingMonetaryPolicyFrameworkinIndonesia With the abandonment of crawling band system and adopted a floating exchange rate system after the economic crisis in 1997/98, the monetary policy framework focused on price stability, with a target of creation of base money (inflation targeting lite). Since July 2005, the monetary policy framework enhanced with the principles of Inflation Targeting Framework. With this framework, Bank Indonesia announced explicit inflation target to the public and monetary policy directed to achieving the inflation target set by the Government. In order to achieve the inflation target, monetary policy is carried forward looking, meaning that changes in the monetary policy stance is performed through the evaluation of future inflation is still in accordance with the inflation target has been announced. Within this framework, monetary policy is also characterized by a policy of transparency and accountability to the public.

Operationally, the monetary policy stance is reflected by setting the policy rate (BI Rate) which is expected to affect interest rates and money market deposit rates and lending rates. Changes in interest rates will ultimately affect output and inflation. Implementation of the ITF in Indonesia following the basic principle that the ITF is a framework, not the rule. With this principle, monetary policy is not implemented rigidly. The implementation of monetary policy is also considering development goals, especially broader economic growth. In contrast to the principle of full discretionary, ITF requires that discretionary policy in the implementation of monetary policy is limited. With these basic principles, Bank Indonesia monetary policy with the principal elements: a. First, the interest rate (BI-rate) is used as an operational target for monetary replace the money supply. It is based on a consideration of the weakening of the relationship between the money supply to the rate of inflation. b. Second, monetary policy strategies are reinforced with pre-emptive or forward looking. These basic elements as well as a great challenge for Bank Indonesia considering inflation in Indonesia is more influenced by inflation expectations are adaptive. Monetary policy needs to be consistent to the final target will be achieved or avoid the time-inconsistency policy. Without strong consistency, future policy received less attention from the public. Society will again use adaptive expectations and / or provide relatively small portion of the policy measures that will be taken forward and perform optimization in decision-making. Indonesian Banking Architecture (API) is a basic framework of the Indonesian banking system that is comprehensive and also provide direction, shape, and structure of the banking industry for a period of five to ten years. The policy direction of the development of the banking industry in the future will come in the API and formulated based on the goal of achieving a

healthy banking system, strong and efficient in order to create a stable financial system in order to help promote national economic growth. With the need for national banks and the blue print as a continuation of the restructuring program which has been running since 1998, Bank Indonesia on January 9, 2004 has been launched as an overall framework API development policy towards Indonesia's banking industry in the future. The launch of the API is not apart from the efforts of the Government and Bank Indonesia to rebuild the economy of Indonesia through the publication of a white paper in accordance with the Government Decree No.. 5 of 2003, where the API to be one of the major programs in the white paper.

Criticism of the desire to have a more robust banking fundamentals and taking into account inputs obtained in implementing the API for the past two years, the Bank Indonesia feels the need to refine the program of events listed in the API. Completion of API activity programs are not apart from the developments happening on the national and international economy. Improvements to the API programs include strategies include more specific information about the development of Islamic banking, BPR, and SMEs in the future so that the API is expected to have a more comprehensive program of activities and a comprehensive banking system as a whole includes related commercial banks and rural banks, both conventional and Islamic, as well as the development of MSMEs.