The effort to build positive perception among marketplayers was not easy, but the Government and Indonesia’s Financial Authorities must strive to do it somehow amids all the negative issues in circulation.
All efforts to create positive perception of national economic condition and Government’s image could help to comfort the market so it takes Government’s skill to tackle it to keep it from becoming a rolling snowball.
On the external side the Fed stated that America’s economy posted growth from April to May, rebound against Q-1 when it posted contraction. Such was disclosed at the latest economic review by the Fed. In an evaluation recorded in Beige Book, survey report from all over America showed that economic activity as a whole was showing increase. Outlook described by respondents were on the whole very optimistic.
As told, US economic growth unsuspected showed downturn in the first 3 months of this year. The cause of contraction was allegedly extreme cold weather. However, foul weather combined with strengthening of USD forced the Organization for economic Cooperation and Development (OECD) to consider to axe US economic growth prediction.
Today OECD predicted US economic growth would be only 2% 2015 and 2.6% next year. The prediction was less that prediction in November last at 3.1% and 3%. The Fed said that in general manufacturing activity was notably stable in the pat 2 months.
Meanwhile some states reported there was increase in retail budget where retailers predicted increase of sales by end of 2015.
Beige Book also reported about energy industry being injured by downfall of world’s oil price. Te result some oil companies axed their number of workers and limited their oil drilling activities. This data helped the Fed to decide when was the right time to increase benchmark rate.
On the internal side, BI guaranteed to be always present at the foreign currency and bond market to rescue Rupiah when Rupiah sank close to its lowest level in 17 years at Rp.13,245 per USD. Last March, Rupiah touched its lowest level in 17 years at USD 13,245 per USD. Yield of bonds kept increasing since last week and touched 8.198%.
Inflation data of export-import was also the main reference of marketplayers in doing activities. Broadly speaking all exiting data indicated that all was well under control.
Rupiah was closed to inch down to Rp.13,281 per USD in Thursday (4/6) last and was transacted at Rp.13,300 per USD. Previously Rupiah was opened to stagnated at Rp.13,230 per USD but further inched down by 0,62% to Rp13,312 per USD. BI’s data of last week end (5/6) placed Rupiah at mid rate at Rp.13,234 per USD, up against the previous position at Rp.13,196 per USD.
Strengthening of USD had been inevitable and had been going on since the era of President Abdul Rahman Wahid. Before being closed at around Rp.13,290 USD once touched its highest level at Rp.13,313. This was the strongest USD position in the past 17 years since August 7, 1998.
Analysts believed there were some factors that made Rupiah weaken:
Firstly, low economic growth rate and the predictions ahead.
Secondly, foreign capital that kept flowing out of the country. The highest position of USD was at Rp.16,650 on June 17, 1998 when Monetary crisis tormented the nation. The second highest was in November 2008 at Rp.12,650.
At that time there was global crisis as Lehmann Brothers fell, while the third highest position in time of President Gus Dur administration, i.e. Rp.12,000 per April 26, 2001. Today Rupiah value had fallen by April 26, 2001. Today Rupiah value had fallen by 5.9% against USD since early 2015. Weakening of Rupiah was the most severe among other Asian currencies.
Still about the analysts opinion, slowdown of Indonesia’s economy in Q 1-2015 which only grew by 4.7% made economic growth target hard to attain. It would make Rupiah sink even deeper. They predicted the position of USD by end of this year be around Rp.13,200. The following are the position of Asian currencies against USD until Thursday (4/6) last: India’s Rupee -1.1%, Singapore Dollar -1.6%, South Korean Won -1.8%; Vietnamese Dong -2%; Japanese Yen -3.6%; Malaysian ringgit -5.8% and Rupiah -5.9%.
Analysts also saw that external sentiment was more prevalent as pressure on Rupiah. One of them more report of employment in America which was positive as expected. Bettered US economy data would trigger speculation that Fed would increase benchmark rate.
Index if USD was continuing weakening against Euro after ECB meeting which although not changing benchmark rate or quantitative easing – had increased their inflation expectation also means that there must be adjustments in return and expectation of ECB stimulus which was not as high as expected.
Weakening of USD index was followed by increase of German bonds and other bonds around the world. Investors would focus attention on GDP of the Euro zone. Pressures on currencies of developing countries where foreign investors dominated the bond market including Indonesia were having their currency weaken.
Return of bonds in developing countries were seen to increase following return of German bonds. Return of SUN promissory Notes again went up in tandem with slump of IHSG and Rupiah depreciation.
One of them was BI’s step amidst integration of Indonesia economy with global economy, currency stabilization sustainable national economic growth, the situation needed support from and turbulent proof. BI was still constantly trying to interfere domestic forex reserves.
Such was in line with BI’s mission as a financial institution having the mandate to maintain Rupiah stability. Some sound measure was taken by BI to enhance deep probing of the forex market, i.e. to regulate transaction of foreign currency an Position of Net Forex reserves through the following regulation:
Firstly, PBI No 17/PBI/2015 on Revision of bank Indonesia regulation Number 16/16. PBI 2014 on transaction of Foreign Currency on Rupiah between bank and the domestic counterpart. Secondly, PBI No.17/2015 on Revision of BI regulation No 16/17/PBI/2014 on forex transaction against Rupiah between bank and foreign counterpart. Thirdly PBI regulation Number 5/13. PBI 2003 on the Forex Position.
Fine tuning of the above regulation was expected to speed up deep searching of domestic foreign currency which was among others characterized by sufficient liquidity, convenience in transaction, reasonable price and minimum risk to maintain economic stability.
The fine tuning also proved BI’s sound support to domestic economic activities by supporting hedging practices by economic players to mitigate market risk and forex liquidity.
Toward attaining such a condition, BI was striving to maximize capacity and flexibility in doing currency transactions by eliminating bank’s obligation to maintain position of Net Forex Position every 30 minutes in tandem with adjustment of rules of foreign currency against Rupiah, credit or financing as underlying, and expansion of scope of underlying transaction including also income estimation and expense estimation of trading and investment activities.
To assure foreign investors in maximizing use of derivative instrument as hedging practice of their investment in Indonesia, there would be write off for minimum 1 (one) week derivative transaction for foreign investors. Adjustment of forex transaction against Rupiah was done very cautiously and still observing the effect on stability of financial system by making it mandatory for banks to obey rules related risk mitigation.
From the above picture, Rupiah was projected to be in the range of Rp.13,200 – Rp.13,300 per USD and to continue through the week in line with rising demand for USD for various corporate need.
The Capital Market
Index of IHSG fell by 3 points last Thursday (4/6) due to hard pressure to sell. Index had to slip away from 5,100. Closing transaction, IHSG was axed by 34,678 points (0.68%) to 5,095.821 while index of LQ 45 was corrected by 7.871 points (0.89%) to level of 879.328.
The plantation sector was most sharply corrected while the trading sector was the only sector that strengthened. Foreign investors made net sell of Rp.385,2 billion while Wall street was under correction toward announcement of US employment data. Greece’s uncertain position against creditor state also generated negative sentiment.
During closing session last Thursday (4/6) Dow Jones weakened by 170.69 points (0.94) to 17,905.58; index of S&P 500 was down by 18.23 points (0.86%) to the level of 2,095.84 and index of Composite Nasdaq dropped by 40.11 points or 0.79% to 5.059.13. Index at Wall Street weakened due to falling price of oil commodities and negative sentiment from Greece who requested for Suspension of debt payment.
Greece was the first country who requested for suspension of debt payment of IMR since 1980. IMF stated that supposedly the Fed suspended increase of benchmark rate till mid 2016 as IMF lowered America’s growth projection for the second time in the past 3 months.
IMF lowered US economic growth from 3.1% to 2,5%. Data of Initial Claim of last week again showed downturn which indicated the labor market remained strong. Data of non-farm payrolls was predicted to increase to 225,000 people while unemployment was predicted to stay at 5.4%
The course of Asian stockmarket last week end weakened (5/6) moved downwards as seen in index of Nikkei 225 which weakened by 109.95 points (0.54%) to the level of 20,378.24 and index of Straits Times also inched down by 2,86 points (0.09%) to 3,342.14.
One thing was sure downturn of IHSG by last week was correction on the 5th day and was lowest closing since transaction on May 4 last. From the domestic sentiment, marketplayers feared inflation pressures toward Ramadhan in the next months and Idul Fitri next July and the trend weakening of Rupiah against USD.
Foreign investors seemed to be switching porto folio. Evidently State Promissory Notes (SBN) of foreign fund which entered came to USD 600 billion 2 days ago amounting to Rp.53.1 trillion since early year. There were 2 main reasons which made investors worried and forced them to release shares:
Firstly, analysts saw that Indonesia would enter an era of high inflation in June and July due to Ramadhan and Idul Fitri triggered by price of food.
Secondly, investors was influenced by statement of a Singaporean expert Lee Boon Keng about the need for Indonesia to run stress test in the banking sector till to anticipate Rupiah value to Rp.25,000 per USD.
Fear of inflation was groundless. Either BI or the Government had high concern for downpressing inflation. BI, the Central Government and Provincial Governments kept coordinating to monitor inflation. The provincial inflation controlling team (TPID) were intensively controlling stock of goods especially food to prevent unnecessary price increase.
Most economist believed that inflation this year could be downpressed below 5%. BI also believed that this year inflation could be in the range of 4 plus minus 1%. The stress test to the level of Rp.25,000 was something not to be adopted. Empiric data had it that the lowest Rupiah level was Rp.17,000 per USD during the crisis of 1998.
The realistic and reasonable level of stress test was Rp.15,000 – Rp.36,000 the way it was run by BI and OJK. At that level, BI and OJK shared the belief that the banking sector still had strong resistance. Banks in Indonesia had no great exposure in foreign currency when Rupiah was at Rp.16,000 per USD.
By March 2015 CAR of banks were still high, i.e. around 20.7% way above the minimum requirement of 8%. Ratio of NPL remained low and stable above 2.4% gross. The condition of liquidity was still safe as indicated by Third Party growth in March 2015 at 16.0% (y o y).
Beside stability in banking and economy, Indonesia’s economy was in general notably good. Lately many infra-structure projects were executed, and the Government was committed to speed up liquidation of capital expenditure, while BI planned to relax macro prudential policy. Other positive point was support by some countries and multilateral bodies for Indonesia.
In this month of June the Government promised the next phase of economy package as part of structural reformation including tax incentives and a number of policies to solve high production cost. The new policy package was expected to propel economic growth in Q2 till Q3 and Q4 next.
Whats’s more, BI consumer’s survey indicated Consumer’s Confidence Index in May 2015 had strengthened, after weakening in the past 2 months. This was reflected in Consumers Confidence Index of May 2015 which increased by 5.4 points to become 112.8 Strengthening of IHK was driven by increase of two key components i.e. today’s Economy Condition Index (IKE) and Consumer’s Expectation Index which increased by 3.7 and 7.0 points respectively against previous months.
Survey outcome indicated that pressure from soaring prices would cool off in August 2015 as demand turn back to normal After Idul Fitri. Downturn was predicted to happen in all commodities, the biggest downturn being in transportation, communication and Financial services.
This year the Government planned to spur on infra-structure projects at the value of hundreds of trillions of Rupiah. Ten prioritized projects was worth Rp.220 trillion of investment, which were the Bontang Oil Refinery Plan at the capacity of 235 thousand fered by tender this year end. Furthermore the drinking water project in West Semarang at the value of Rp.765 billion, to be realized in June.
Besides, the Balikpapan – West Samarinda toll road project at the value of Rp.11.4 trillion. Land clearing had been accomplished 80%, the auction was schedule for September 2015. Furthermore revitalization of 3 small and medium size airports of the 10 targeted airports in Lampung, Palu and Komodo. The fifth project was the High Voltage Direct Current (HVDC) power transmission projects inter-connecting Sumatra and Java at the value of Rp.20 trillion.
Furthermore the railway transportation project for cargo in East Kalimantan worth USD 3,5 billion (4,5 trillion) involving Russian investor. Furthermore 500 Kv power transmission project from South Sumatra to North Sumatra at the value of Rp.35 trillion.
The eighth project was the Soekarno Hatta airport express tain project at the value of Rp.24 trillion target for June 2015. The ninth project was Batang Powerplant project of 2000 MW capacity worth Rp.40 trillion today only land clearing stage completed and to undertaken by PLN. Lastly four toll road sections in Sumatra, i.e. Medan – Binjai, Palembang – Indra Layla, Pekanbaru – Dumai and Bakaheuni – Tebangi Besar at the value of Rp.30 trillion.
Furthermore through the Regulation of the Ministry of Energy of Energy and Mineral Resources No 16/2015 on requirements for benefit ing from tax facilities for capital investment on certain sector and Energy and Mineral Sectors, the Government allowed convenience to investors entering the energy sector
There were 8 special business lines in certain areas which were entitled to tax allowance from the Government, which were: oil and gas, minerals and coal, electricity and alternative energy.
For the coal minery sector, the Government would only give incentives to two business sectors. Firstly gasification in all sectors in all provinces at investment value of least Rp.100 billion. Secondly, processing of liquid coal especially in Central Kalimantan, East Kalimantan, North Kalimantan, Central Kalimantan, Aceh, Jambi, West Sumatra, Bengkulu, South Sumatra and Riau islands. Minimum investment was Rp.100 billion.
Meanwhile for the mineral minery sector the line of business to be given tax allowance were gold and silver, iron sand, iron ores, Uranium and thorium, tin, black tin, bauxite, copper, nickel, mangan, zinc and zircon. Businesspeople were entitled to tax allowance on condition that they would build smelters outside Java for certain commodities.
The minimum amount of investment was Rp.100 billion for iron, uranium, tin nickel and mangan. The minimum investment for black tin and zircon was Rp.50 billion, and bauxite and gold Rp.250 billion. By that policy and mining would grow. As known, selling price of the said commodity prices was low today so investors were relictant to invest in this sector.
From the above picture it was apparent that over the week and to continue this week IHSG was predicted to be fluctuative in spite of the chance to rebound if external pressures to sell was low as global market turned condusive.
The chance to rebound was triggered by acts of buy-back of certain leading shares especially in the banking sector although being under pressure to sell as the price was in over sold zone. In the closing session last week (5/6) IHSG moved in the range of 5,110 – 5,180. This week IHSG stood a chance to inch up to around 5,120 – 5.220. (SS)
Business News - June 10, 2015