At last, the euphoria of increase oil price and BI’s benchmark rate showed signals supportive to Rupiah strengthening. The motion was still sideways as marketplayers were waiting for Government’s announcement of economic data this early December. Besides, the effect of oil price increase and BI benchmark rate on Indonesia’s fiscal would only be seen in the next 3 months. The increasing probability of the US Central Bank to increase benchmark rate overshadowed Rupiah.
There was potential that Rupiah would be downpressed with growing demand for USD by end of month. As known, companies must fulfill obligations in USD. Predictably over the week Rupiah would be in the range of Rp.12,000 – Rp.12,200 per USD as the positive sentiment was still there.
Projection for Rupiah was inclusive of BI’s forecast of November inflation till year end. Due to oil price increase, inflation in November would be around 1.2% - 1.4% compared to previous month [m t m].
Therefore BI must maintain price stability to end of year. BI’s inflation target after oil price was increased by Rp.2,000 per liter was notably low compared to the years before. With increased inflation of 2.4% - 2.8%, BI was optimistic inflation could be managed in the range of 7.7% - 8.1%. And yet in 2013 there was all year inflation as increase of oil price touched 8.38%.
One of BI’s effort to control inflation till end of 2014 was to make sure that inflation of volatile food and inflation was not significantly affected. BI must constantly coordinate with the inflation Controlling Team at central and provincial level as well as the Government to prevent second round effect of oil price increase.
Oil price increase would bring pressures on certain sectors like manufacturing, transportation, construction and property, so stockplayers should be responsive to the trend. The essential need sector was probably less affected and IHSG would settle at 5,140 – 5,240 with tendency to strengthen.
Bloombreg Dollar Index: last Friday [28/11] Rupiah inched down by 0.11% to Rp.12,191 per USD, meanwhile on Thursday [27/11] Rupiah inched up by 0.01% to Rp.12,177. USD was overpowering Southeast Asian currencies, namely: Singapore by 0.31%, Philippines [0.1%], Rupiah [0.23%], Malaysia 0.81%, Thailand [0.14%]. So Southeast Asian currencies slumped simultaneously against USD.
The Government strived to minimize second round effect of increased oil price, such as public transportation cost.
Previously BI was striving to keep inflation low and stable. By 2015, inflation was predicted to be at around 1% + 4%. By 2016 inflation might reach 3.5% plus minus 1%. Low inflation of 3,8% as in 2011 and 4.3% as in 2014 resembles the inflation in the Philippines, Malaysia and Thailand. Meaning BI rate must go down.
Inflation in Indonesia could be the lowest in ASEAN provided the Government strengthened structural reformation. In case of subsidized oil price it was recommendable for the Government to adopt fixed subsidy policy. In that case inflation could be controlled.
The Capital Market
Asian stockmarkets left IHSG behind. Selling spree had made IHSG to be axed by 17 points. In opening session last weekend, IHSG inched down by 5.673 points [10.11] to 5,139.462. Index stagnated during weekend as players tend to wait and see.
IHSG Index was willowy and constantly descending. The lowest position was 5,126, During closing of session I [28/11]. IHSG corrected by 17.387 points [0.34%] to the level of 5,127.928 while index of LQ45 was axed by 3.937 points [0.44%] to the level of 882.903.
Some acts of profit taking was happening at the stock hall among rising shares. Index of the plantation sector was corrected quite deeply. Transactions was running moderately with 104,172 transactions and 5.118 million lots worth Rp.2.399 trillion. 111 shares ascended 147 shares descended and 79 shares stagnated.
Most regional shares strengthened, expect Hong Kong stockmarket but China’s plan to inject stimulus was positive. Index of Nikkei 225 soared up by 192.48 points [1.12%] to the level of 17,440.98 Index of Hang Seng weakened by 25.70 points [0.11%] to the level of 23,978.58. Index of Composite Shanghai rose by 19.00 points [0.73%] to 2,649.57. Index of Straits Times grew by 11.14 points [0.33%] to the level of 3,352.10.
During transaction last Thursday [27/11] IHSG was closed to increase by 12.279 points [0.24%] to 5.145,315 while index of LQ45 increased by 2,253 points [0.25%] to 886,840. Investors zest to buy premium shares revitalized IHSG.
Foreign investors were seen to be making sizable net buy, posted at Rp.522.721 billion which made 8 out of 10 sectoral shares to strengthen. Only 2 sectors weakened, i.e. infra structure and banking.
Transaction was running moderately as many as 201,264 times including 6.603 billion lots worth Rp4.65 trillion. 124 shares went up, 124 went down and 95% stagnated; 8 of 10 sectors strengthened.
The strengthening sectors were agro business [1.17%] mining [0.55%] basic industry [0.88%], various industry [0.87%], consumers [0.33%], property [0.18%], trading [0/1%] and manufacturing [0.61%]. Only one or two sectors weakened during closing session i.e. infra structure [0.24%] and finance [-0.14%].
Banking analysts projected increase of benchmark rate would only suppress financing growth till Q 1 2015. They expected the high benchmark rate era would only last for a short term, between 1 to 3 months next year, thereafter BI rate was projected to descend so the real sector and banking sector could revitalize itself.
They predicted that demand fro credit would lessen. On the contrary, from the demand side financial institutions would also be prudent in extending credit. All in all the real sector would contract. In general economic growth would be under pressure due to increased BI benchmark rate and oil price increase.
The Indonesian Stock Analysts Association [AAEI] predicted IHSG would strengthen next year. A better economic fundamental was the underlying reason for index strengthening. Next year index stand a chance to break through 6,300. Index was signaling increase even now.
Government’s decision to increase oil price was responded positively by the market. BI’s decision to increase benchmark rate by 7.75% was also well responded although it might hold back economic growth and Rupiah tend to strengthen also.
In view of the response, the two policies were believed to improve macro economy fundamental as a whole but the policy could also generate short time pressure of 3 to 4 month. So this week index would fluctuate in the range of 5,150 – 5,200. Last week end [28/11] IHSG fluctuated around 5,125 - 5,175. (SS)
Business News - December 3, 2014