Increase of BI rate by 25 basic points from 7.25% to 7.5% last week by Bank Indonesia posed as problem to both Rupiah value and IHSG index this week.
Increase of BI rate brought pressures on the real sector and banking sector. The signal flickered by the monetary authority was clear : that BI wished to cool down economic growth for the sake of taming inflation and Deficit of Current Account which was still wide. So increase of BI rate was justifiable.
The overshadowing external factor was Tappering Off plan by the Fed in the USA. When the plan would be released had been the argument over the past quarter. The point was whenever the plan would be released the negative effect on the market would be small as the market had been taking adaptive measures [price in and price out] of the plan.
Rupiah value was still weakening against USD by early transaction last week [15/11]. Rupiah inched down by 0.09% to Rp11,555 per USD. Rupiah weakening happened when USD tend to weaken against currencies of the Asia Pacific region which was on account of weakening US economy.
Candidate for the next Federal Reserves Governor Janet Yellen stated that the US economy was now “strengthening significantly” since the global crisis of 2008, but support by the Central Bank was still needed. Janet made this statement last Thursday [14/11] before the Banking Commission of Senate, where critics of the Republic Party set hard questions over the large scale support by the Fed to US economy and Janet’s support in the past to policy of that sort.
If the succession was confirmed at the Senate Plenary Meeting, Yellen would be the first woman who would lead the Fed which was already 100 years old to replace Ben Bernanke who would resign in January 2014 next. Yellen stated that US economy “had made satisfactory progress” since the deep recession which was the worse recession in seven decades. It was noted that America had created 7.8 million new jobs since 2010 while housing and automotive industry were also strengthening.
However the 67 year economist said that America’s economy was still “in its long journey toward regaining the attainments lost during crisis” while striving to enhance employment. Evidently US President Barrack Obama had decided to completely suspend implementation of the Law of Health Insurance which was suspended for another year.
Speaking at the White House after his Government was struggling with issues of unkept promise, again Obama had to apologize to 5% of US citizens who could not have their health insurance policy due to the new Law. Now insurance companies could offer options to the insurance holders to renew their old insurance policy, but they were not obliged to do so.
President Obama admitted that his Government had failed to start registration of the Obamacare plan and admitted the need to ragain credibility from the American people. Obama said that in spite of the so many failures he would not listen to grumbles of some legislative members who “shamelessly” attacked the health insurance policy.
Previously Head of the US Parliament of the Republic Party John Boehner said that the American people could not let the Obama administration “destroy” the best health service system in the world. This polemic was certainly not good for the USD which was under the pressure of other world’s strong currencies.
The fact was that Rupiah was still weakening during transaction last Thursday [13/11] when it inched down by 0.7% to Rp 11,67 per USD. This was close to the lowest level in the last 4 years, i.e. Rp 11,680 posted on September 30 last. The downturn occurred when BI increased their benchmark rate. This triggered the speculation that the released trade balance only showed little improvement against deficit in quarter II which reached the highest record.
As known, on Wednesday November 12, 2013 last, meeting of BI Board of Governors decided to increase BI rate by 25 bps to become 7.50% with Lending Facility and Deposit Facility to become 7.50% and 5.75% respectively. The policy was applied considering high DTB amidst the risk of global uncertainty.
Hence the decision was made to make sure that DTB was lowered to a healthier level and inflation to be controlled at 4.5% + 1% in 2014 whereby to support continuity of economic growth. In the future BI observed some risk in global and national economy and to enhance monetary policy mix and macro-prudential policy. BI would also foster coordination with the Government particularly in controlling inflation, deficit of current transaction and efforts to improve national economic structure.
Economic growth of Q-3 2013 slowed down according to previous estimate. Indonesia’s economy in Q-3 2013 grew by 5.6% [ y o y ], slower than Q II 2013 at 5.8% [ y o y ]. Economic slowdown was mostly seen in investment and declining investment and slow growth in non building investment.
Real export performance was showing improvement in spite of being followed by increased total import. Meanwhile consumption household and Government consumption alike were showing betterment. BI rated that economic slowdown was inseparable from the stabilization policy of the Government and BI pursuit of healthier economic growth.
Based on development till Q III – 2013 BI still predicted economic growth 2013 in the range of 5.8% - 6.2% to step up to the range of 5.8% - 6.2% in 2014.
On the external side, development of Indonesia’s Balance of Payment in Q-III-2013 was still in deficit, which was predicted to be reduced to USD 8.4 billion in Q III-2013 compared to near USD 10.0 billion in the previous semester.
Improvement was mainly seen in surplus of non oil gas commodity trading [fob] with downturn of non oil gas commodity importing due to decreasing local demand. Besides, deficit in balance of income also contracted. However deficit in oil gas trading continued to expand as domestic production dropped and import of oil fuel for domestic consumption was still high.
Meanwhile surplus in Capital and Financial Transaction Balance Sheet as impact of inbound capital and portofolio investment slumped due to uncertainty of the global moneymarket which was still high.
Forex reserves was posted at USD 97.0 billion by October 2013, increasing by USD 1.3 billion against the position of late September 2013 at USD 95.7 billion, which was equal to 5.5 month of import or 5.3 month of import and payment of Government’s overseas debts. BI felt that this amount was safe enough to be at international standard adequacy ratio and strengthen national resilience.
Rupiah exchange rate value in October 2013 was notably stable to move according to the fundamental condition. Rupiah by point-to-point strengthened by 2.73% [m t m] to become Rp11,273 per USD but on the average weakening by 0.14% [m t m] to become Rp11,343 per USD. The development was influenced by the condition of global moneymarket in October 2013 which was satisfactory and lowered expectation of domestic inflation which in turn attracted inflow of foreign capital to the domestic moneymarket particularly SBI and SBN.
The pressures of eased inflation continued on October 2013. IHK Consumer’s Index in October 2013 was posted at 0.09% [m t m] or 8.32% [y o y] which indicated that inflation had returned to its monthly pattern. The eased inflation originated from food group, while inflation of administered prices and core inflation was still stable. Core inflation which was stable [4.73% y o y] was among others influenced by external pressure in line with global food prices was on thr downturn.
To end transaction last week [5/11] was under strength test at around Rp11,500 – Rp11,600 per USD. Speculations over follow up of US stimulus program tend to weaken USD against currencies of the developing nations including Rupiah.
Statement of Candidate Governor of the Fed Janet Yellen, who said that stimulus was still needed had held back USD downturn. The same statement had also strengthened price of gold which had its positive impact on currencies of the emerging market. This had enhanced Rupiah appreciation over the week to the level of Rp11,400 – Rp11,500 per USD.
The Capital Market
Unlike Rupiah which was under pressures, IHSG at BEI last Friday [15/11] was opened stronger by 21.54 points in tandem with Rupiah’s cooling down. IHSG BEI was opened to increase by 21.54 points or 0.49% to the level of 4,388.91. Meanwhile index of premium shares 45 [LQ 45] inched up by 5.50 points [0.75%] to the level 734.40.
IHSG had managed to continue strengthening in tandem with eased Rupiah unrest and bond market. Strengthening of BEI was due to the condition of global stockmarket which tend to be positive as monetary stimulus by the Fed was still to be continued. Yellen, who strongly supported stimulus with expectation of US interest rate to be increased in 2017 against the previous expectation of 2015.
IHSG had the potential to continue strengthening during closing session last weekend [15/11] in the range of 4,400 – 4,450 although increase of BI rate was still the main hindrance. During transaction on Thursday [14/11], IHSG strengthened by 65.48 points [1.52%] to the level of 4,367.37 with transaction value of Rp 4.6 trillion. Foreign investors were booking net sale of Rp 155 billion. Market optimism after Janet Yellen signaled to maintain stimulus would enhance stockmarket.
Meanwhile at the regional stockamarket, among others index of Hang Seng strengthened by 238.46 points [1,05%] to the level of 22,887.61; index of Nikkei 225 rose by 258.12 points [1.74%] to the level of 15,134.54 and Straits Times strengthened by 7.99 points [0.25%] to the level of 3,198.92 while majority of shares in Asia were greening.
Indonesia’s stockamrket was predicted to continue strengthening thanks to buying spree of some premium shares: blue chips or second liner through this week in the range of 4,430 – 4,480; however there was possibility that stock players would leave the market has they were waiting for increased interest rate after increase of BI rate. Moreover increase of BI rate was a hard blow, particularly to the property and banking sector.
During transaction in mid- last week [13/11], one day after BI increased BI rate, price of property and banking share dropped. In the afternoon session, IHSG was closed to sink by 61.08 points or 1.38% to the level of 4,380.64. The majority of sectoral shares weakened, led by the financial sector which slumped by 2.82% followed by the property sector which dropped by 2.78%.
Furthermore, the various industry sector slumped by 1.9%, consumer goods reduced by 1.51%, manufacturing shrunk by 1.35%, mining slumped by 1.22% and trading negative at 0.98%. The only thing that strengthen was plantation sector 1.72% and infra-structure inching up by 0.61%. However if stock players could understand that BI’ aim to increase benchmark rate was to revitalize national economy, there was no reason for stockplayers to quit the stockmarket.
They would continue to make transactions as usual as BI’s intention was to stabilize economy. Moreover the Government also supported BI’s plan to improve DTB and inflation rate so national economy would be strong and sustainable.
Business News - November 20, 2013