Friday, 6 February 2015


Rupiah and IHSG seemed to be drifting in opposite directions. When Rupiah value against USD was under pressure, index of IHSG at BEI signaled strengthening.

The market saw Rupiah descending close to Rp.12,500 generating uncertainty to businesspeople. Foreign investors, especially non American investors were questioning the feeble state of Rupiah which had its negative effect on business.

Rupiah depreciation against USD which came to 4% - 5% alone was the deepest slump in the past 6 years. Rupiah tend to weaken till end of this year. Within 6 months Rupiah touched Rp.12,650 per USD by November 24. 2008.

Meanwhile Rupiah during transaction past week [10/12] was closed at Rp12,330 per USD, way above APBNP assumptions 2014 which set USD at Rp.11,800 and APBN assumption 2014 which set USD Rp.11,800 and APBN 2015 at Rp.11,900. Surely businessplayers were expecting a Rupiah which was stable because if it was factitive it would make company’s financial planning difficult.

Rupiah weakening this year was not just due to technical factor such as the Fed’s action, but also other factors like Indonesia’s fundamental economy which was sensitive to external factor.

Rupiah strengthening through 2010 – 2011 was more due Quantitative easing [QE] adopted by the Fed which there a vast amount of Fund, i.e. USD 600 million in QE 2, plus USD 85 billion per month which stopped last October to propel US economy.

Massive injection of capital caused USD to overflow to many regions which promised high return including the emerging markets. The USD entered moneymarkets and stockmarkets of the world, making local currencies including Rupiah to soar up. Through hedge funds, the USD continued to strengthen out powering commodities and even oil.

Since May 2013 the Fed adopted a new policy called Tapering off, gradually reducing supply of USD from QE. The policy was adopted because America’s economy had strengthened as seen in economic growth, employment and rising inflation. The policy caused USD to flow back to America.

Some countries of the emerging market like Indonesia were posting sizable capital outflow. To keep foreign capital from flowing out, BI had increased benchmark rate to the level of 7.75% by November 2014 against 5.5% in 2013. Previously had been maintaining benchmark rate at 7.5% in the past 12 months.

At the stockmarket the condition was quite different since IHSG kept moving up although the market was under heavy pressure.
The Moneymarket

Rupiah value against USD during morning session last week [12/12] weakened to its lowest level in 5 years. Bloomberg data index had it that Rupiah inched down by 0.4% to Rp.12,399 per USD.

Rupiah even inched down by 0.53% to Rp.12.415 per USD and moved in the range of Rp.12.415 per USD and moved in the range of Rp.12,371 – Rp.12,421. Predictably Rupiah would be suppressed toward Rp.12,375 – Rp.12,410 by closing session [12/12]  while for this week Rupiah value was predictably suppressed although not as heavy as last week so Rupiah would move in the range of Rp.12,390 per USD.

It was noteworthy that the external factor seemed still be overshadowing Rupiah. US economic data bettered and strengthened USD which was under pressure in the past 2 days. Rupiah had been under pressure over the week.

Meanwhile increase of benchmark rate by BI to 7.75% had helped Rupiah from sinking any deeper. So it was right for the BI Board of Directors [RDG BO] who in their meeting on December 11 last decided to maintain BI rate 7,75% in anticipation of the Fed’s maneuvers.

RDG BI on December 11 2014 decided to maintain BI rate 7.75% with Lending Facility and Deposit Facility respectively at 8,00% and 5.75%. The interest level was still consistent to control inflation for the short run after the oil price increase to bring it back to the level of 4% + 1% in 2015.

The policy was in tandem with stabilization measures taken so far to control deficit in current transaction to a healthier level. BI was striving hard to stabilize macro economy.

Tight money policy was continued to control inflation and deficit in current transaction, while accommodative macro-prudential policy was adopted so monetary approach would not cause risk on stability of the financial system.

Besides, coordination of policy between BI and the Government was intensified to maintain macro-economic stability especially on controlling inflation in relation to oil price increase and deficit in current transaction and the process of structural reformation for sustainable economic growth.

In America, the Fed’s policy to increase Fed Fund Rate as per Q II-2015 had strengthened appreciation of USD against nearly all currencies of the world, causing capital outflow in the merging markets including Indonesia.

On the contrary , Europe and Japan’s economy were still under pressure in spite of injected stimulus on the monetary side. Economic slowdown in China was also continuing due to-balancing process which had made global commodity prices to go down.

At home, economic growth in Q IV-2014 was redicted to slowdown although improving again in Q-I 2015. Especially being driven by slowing down economy in line with austerity program and slowing down of household consumption as inflation effect.

For all through 2014, economic growth was predicted to get close to below 5.1% - 5.5% but again inching up in Q 1 – 2015 to around 5.4% - 5,8% in 2015. The brighter side of it was bettered balance of payment with shrunk deficit and increased surplus of capital. Indonesia’s trade balance posted surplus of USD 0.02 billion in October 2014 after deficit of USD 0.26 billion before.

The positive performance was thanks to surplus in trade balance which increased in line with increased export of manufacturing like automotive. Meanwhile on the financial side, inflow of foreign capital remained high, being elevated by positive perception of domestic economy. Accumulatively by November 2014 inflow of foreign portofolio to Indonesia’s stockmarket came to USD 17.75 billion.

High appreciation of USD was in line with the Fed’s policy which weakened nearly all currencies of the world including Rupiah. In November 2074 Rupiah weakened by 0.21% on the average [mtm] to Rp12,167 per USD.

Improved trade balance and inflation being under control in October 2014 was not good enough to ease pressures on Rupiah. However pressures on Rupiah was neutralized by optimism over future economy.

Economist predicted that weakening of Rupiah would continue through 2014. Monetary authorities were asked to watch on the Federal Open Market Committee [FOMC] on December 2016 because it was most strategic for economic stability in the future.

Weakening of Rupiah which was in tandem with other Asian currencies caused BI to able to make intervention today. Fear of reduced forex reserve was the reason why BI was not willing to make intervention at the stockmarket. Unless there was cautiousness of BI, rupiah had the potential to sink deeper to Rp12,400 this year end.

So it was all up to BI. If BI could take action Rupiah would not sink that deep. On the other hand if BI did not do anything, Rupiah might drop to as low as Rp12,300 per USD. Trend of USD strengthening was triggered by falling world’s oil price to as low as USD 62 per barrel.

Besides, the discourse about the Fed increasing benchmark rate made marketplayers speculate about the yielding potential of that currency. Investors were expecting the Fed would signal clearer message about the rate in FOMC meetig this December 16.

Not just that, lessened Indonesia’s forex would pose as negative sentiment. Indonesia’s forex reserves by end of November 2014 was posted at USD 111.14 down against October 2014 which came to USD 111.97 billion. Fundamentally Rupiah prospect by Semester I 2015 was still gloomy.

Rupiah weakening was also due to domestic factors as Indonesia’s economy was vulnerable to global pressures, among them bettered US economy which was not followed by Europe, Japan and China.

Rupiah fluctuation happened since the Fed stopped QE, plus positive and negative sentiment during the pas Government. Rupiah’s lowest position was predictably the same as that in 2008, i.e. around Rp12,400 while the strongest possible position was Rp12,000.- per USD

Apparently Rupiah weakening had been fundamental, i.e. from global sentiment. At home, law breakers to Law no.7/2011 on the prohibition of using foreign currency in stransaction must be sanctioned.

In this case BI must consistently publicise and enforce law No 7/2011 to strengthen Rupiah. Protection of Rupiah could also be exercise by way of hedging in transaction.

Previously a number of economic ministers, governor of BI, Head of the Financial Examination Board [BPK], Legal Prosecutors and the Corruption Eradication Board [BPK] in a Coordinating Board Meeting agreed to support hedging in the effort to anticipate Rupiah fluctuation.

The Capital Market

IHSG index only inched up in spite of positive sentiment from the regional and global side. IHSG even started transaction in the red zone. During pre opening session last week end [12/12] IHSG inched down by 1,534 points [0.03%] to the level of 5,151.161. while index of LQ 45 inched down by 0.38 points [0.04%] to the level of 887.098.

During opening session [12/12] IHSG inched up by 2.740 points [0.05%] to the level of 5155.435. LQ 45 index inched up by 0.240 points [0.03%] to the level of 868.725. index was too late to grab the momentum so it could but inch up. Some act of profit taking held IHSG strengthening. On Thursday [11/12], IHSG ascend to the green zone toward closing session, but fell again due to selling spree of premium shares.

Meanwhile Wall street managed to rebound due to retail data which showed strengthening of US economy and optimism about consumers’ expenditure. US stockmarket ended their 3 day correction. Release of low import and export price which was accompanied by low jobless claims and increase of retail sales had reserved the course of US stock to the green zone.

The positive state of jobless release in the USA contributed to inject positive sentiment which cold balance sell in energy shares due to downturn of global oil prices. At wall street, world’s oil price-after touching lowest levelin 5 years. Strengthening of shares happened as index of S&P 500 slumped by 2.4% in 3 consecutive sessions.

Although oil prices was low, consumers expenditure in the USA managed to surpass market expectation. Retailers’ shares rose high. Shopping time ended well. During closing session on Thursday [11/12], index of Dow Jones rose by 63.19 points [0.36%] to the level of 17,596.34. index of S&P 500 increased by 9.019 points [0.45%] to the level of 2,035033 and index of Composite Nasdaq strengthened by 24.14 points [052%] to the level of 4,708.16.

Asian stockmarkets strengthened simultaneously. Last night Wall street motivated Asian marketplayers to sell. Index of Nikkei 225 rose by 226 135.41 points [0.78] to the level of 17,392.81. Index of Composite Shanghai weakened by 14.26 points [0.49%] to the level of 2,925.74/ Straits Times index increased by 9.22 points [0.28%] to the level of 3,327.92

At BEI IHSG still constantly circled in the red zone over the past week. During closing session on Thursday [9/12] IHSG inched down by 21.702 points [0.42%] to the level of 5,122.312 and index of LQ 45 inched down by 3.366 points [0.38%] to the level of 880.912. The World Bank’s perception that Indonesia’s economy for 2015 would only grow by 5.2% was negative sentiment. The figure was lower than the estimate announced last July at 5.6%. World’s economic slowdown would have its influence on price lowering of some export orientated commodities. Hence income from export would be less or at least be the same as this year.

However, Indonesia was able to strengthen economic sector and jack up investment, so growth could be higher. therefore the Government must maximize absorption of capital expenditure. By last October Government’s capital expenditure only came to 38% of total allocated financing for 2014. The ratio was too slow and inffective for meeting economic growth target.

Beside economic growth, the World Bank also projected inflation for the next year. Oil price increase by 30% was feared to trigger inflation in Indonesia. Inflation on 2015 was predicted at 7.5%. Meanwhile the Government would concentrate on fiscal policy for macro economy stabilization.

In general IHSG was projected to move the varied way in trying to rise during opening session last Friday [12/12]. Positive sentiment from the external side was expected to uplift index. There was chance that IHSG would be in the range of 5.160 – 5,200 during closing session [12/12]. If the level was attained IHSG still had the chance to continue strengthening this week in the range of 5,175 – 5.225 thanks to positive sentiment from the banking sector.

It was expected that strengthening of the US stockmarket would have positive impact on IHSG which had been trying to move positively; but it was also necessary to watch on second round weakening in line wirth profit taking potentials. IHSG would also be uplifted by acts of window dressing toward closing of 2014. In case of domestic stockmarket, windows dressing among blue chip shares on the banking sector seemed to trigger index increase toward new year eve 2014/2015. (SS)

Business News - December 17, 2015

No comments: