Players of the moneymarket, global and
domestic alike, were waiting for definite increase of FFR by the FED. The
latest news was that Janet Yellen signaled there would be increase of interest
by the Fed this year end provided inflation was stable and economy was strong
enough to jack up employment.
Yellen,
who spoke one week after suspension of FFR increase saw that development of
global economy would not govern the Fed’s policy significantly. The statement
included mentioning that weakening of inflation in the USA was only temporary
and might shock investors. They rated that the Fed’s last week’s decision as
signal that tight policy was not an urgent matter and would probably be
executed next year.
According
to Yellen, for the most part price downturn was due to particular reason such
as strengthening of USD and declining of oil price which would soon end. Such
might cause inflation to increase above the targeted 2% or above the average
global inflation. In the other part of her statement Janet predicted that
America would be able to maximize employment and stabilize prices.
The
result was that USD would go on a rally as Yellen stated she predicted the Fed
might increase FFR this year end. Yellen in the speech delivered at the
University of Masachussettes, Amherst stated that US economic betterment “might
need initial increase this year end followed by progressive monetary policy
thereafter.”
Yellen’s
statement was made one week after the Fed maintained FFR at near zero percent
up to 0,25% in a two-day meeting September 16 – 17 last which was effective
since 2006. Yellen stated that decision makers were monitoring development
abroad “but never expect that weakening of economy in China or other places
would cancel the Fed’s plan to increase FFR.”
Yellen’s
statement was noteworthy in that they were progressing toward increasing FFR
this year. Yellen had a strong argument that FFR should be increased this year.
Previously the Fed sent varied messages to stockmarket. Last week for example,
Yellen showed anxiety over weakening global economy. Yellen said: “A bearish
global situation must be watched on.”
The
statement could be interpreted as the Fed being “dovish” about timing of FFR
increase. However, a few days later contradictory statement was made by other
Presidents of the Fed who tend to be “hawkish”.
Spontaneously,
investors of the stockmarket were trying hard to understand The Fed not to
increase FFR on September 17 last and always predict timing of FFR increase. As
known on September 17 last Yellen announced The Fed would not increase FFR.
Although
The Fed was optimistic about US economy, Yellen referred to global economic
slowdown as reason to suspend increase of FFR. Anxiety over China’s economic
slowdown and the emerging markets caused wild movement of the financial market.
Furthermore
on September 19, two days after Yellen’s speech, President of the Fed of San
Fransisco John Williams said that the decision to increase FFR was getting
near. Such was contradictory to the Fed official statement, which showed that 9
out of 10 members of the Fed refused increase of FFR.
The
only one who agreed was Jeffrey Lacker, President of the Fed Richmond, who
wished that the Fed would uplift FFR. Williams was of opinion that US economic
performance was not guaranteed by bank economic performance was not guaranteed
by bank interest close to zero percent. According to Williams, US economy
policy was applied.
Furthermore
on September 21, it turned out that Williams was not the only President who
made statement contradictory to Yellen’s statement. President of the Fed St.
Louis Bullard also agreed to increase FFR. He believed that there was a big
obstacles today to increasing FFR. On the same day, President of the Fed
Atlanta Andrew Lockhart said that most probably FFR would be increase this year
as long as the stock market was peaceful.
Back
to the statement made by Yellen, the more certain FFR was increase the better
it would be to the global and domestic market.
The Money Market
So
far pressures on Rupiah was continuing, Rupiah even touched Rp.14,600 per USD
last week. BI’s mid rate showed Rupiah was at Rp.14,623 Per USD – lower than last
week’s position at Rp.14,463. Per USD or lower than the latest position last
week at Rp.14,463 and yet only last month (3/8) Rupiah was still at the
position of Rp.13,492 per USD.
When
many circles urged BI to lower BI rate to energize domestic economy, the
Governor of BI Agus Martowardjo confirmed BI would not change benchmark rate
until positive data comes into view.
If
the existing data showed betterment, BI could analyze them, especially data
which showed inflation was under control, deficit in current account was
minimized, and global sentiments were relaxed.
Data
of JISDOR showed that by Wednesday (23/9) last Rupiah settled at Rp.14,623 per
USD, a downturn against the previous position of Rp.14,486. The Governor of BI
said that Rupiah weakening was due to external turbulence. The world was afraid
that economic slowdown in China might affect countries whose export was still
relying in natural goods. Under the circumstances BI would always be in the
market and run prudent policy to tame inflation.
In
tune with the Governor of BI, the Coordinating Minister of Economy Darmin
Nasution admitted Rupiah would soar through Rp.14,623 per USD as marketplayers
were speculating on China’s future. Commodity prices was down as market
speculated about China’s economy. Darmin did not see domestic factor
influencing Rupiah slump.
Indisputably
Rupiah that weakened to as low Rp.14,700 per USD was on account of external and
internal sentiments, i.e. the Fed who suspended increase of FFR, weakening
China’s economy and Indonesia’s weak fundamental economy.
Other
sentiments that made Rupiah slump was revised projection of Indonesia’s
economic growth by ADB from 5.4% to 4.9% this year refuted in negative market’s
perception and Rupiah deeper sinking.
Beside
there was released economic data like export which was not high enough and
projected domestic economic growth which failed to reach above 5% - all posed
as negative sentiment to Rupiah.
If
Rupiah weakening was due to external sentiment, the Government must respond to
it by uplifting market trust. It was right indeed for the Government to issue
Chapter II of Economic Policy Package which was expected to affect Rupiah
positively.
However
it must be borne in mind the Government’s strategy alone would not
automatically rescue Rupiah, sound action was still needed before any tangible
result could be seen. The Government must constantly encourage businesspeople
to build solid foundation so the strategy could bear quick result.
In
the draft of Economic Policy Package Chapter II which was still being dissected,
the objective of strategy was focused on Industry and Agriculture. The Policy
Package would consist of rules and deregulations, mainly aimed at promoting
export.
As
told, President Joko Widodo had released Economic Policy Package Chapter I on
September 9, 2015 in which 134 rules had been deregulated; the 134 Regulations
were extracted from the previous 154 Regulations.
Of
the above regulations some plans were to be underscored, i.e. acceleration of
industrial estate development projects as mandated in the National Middle Term
Development Plan (RPJMN). Directly or indirectly the impact would be seen in
the Rupiah stabilization process.
The
effort to build domestic economy foundation was important in building market
trust in Indonesia’s economic prospect amidst rumors of the Fed increasing FFR
this year. The Fed suspended increase of FFR at the FOMC meeting two weeks ago
because the US manufacturing sector was not performing well. Unimpressive
performance of the US Purchasing Index (PMI) which only inch up from 53.0 to
53.1 in August.
The
Government of RI was also preparing an instrument to jack up national forex
reserves whereby USD could be expected to stay longer in Indonesia.
Last
week the Ministry of Finance Bambang Brodjosumantri attended meeting on
increasing forex reserves at the Vice President’s office. The meeting which was
chaired by Vice President Jusuf Kalla was also attended by Governor of BI Agus
Martowardojo. The point of discussion was how to increase forex reserves by
jacking up export.
The
Government claimed they needed vast amount of forex reserves to prevent capital
outflow due to global economic turbulence as soon as export was increased, the
next step was to drive forex-from-export into the domestic banking system.
At
the moment Indonesia’s forex reserves was still at safe level, at lease
overseas debt. Still it was very urgent for the Government to increase forex.
Governor of BI Agus Martowardojo reported that the position of national forex
reserves on Monday (21/9) came to USD 103 billion, which was les than that of
August 2015 at USD 105,3 billion.
Statement
of the Governor of BI was in line with revised assumption of Rupiah value in
RAPBN Budget 2016 which at the moment the basement level was increased to Rp.13.700
– Rp.13,900 per USD against the previous Rp.13,400 – Rp.13,900 per USD. The
Governor of BI estimated pressures in Rupiah would still continue till Q
I/2016.
Speculations
of global economy over FFR increase by the Fed, devaluation of Yuan and lowered
commodity prices would slow down capital inflow or even drive capital out of
the country. By calendar year, by September 18, 2015 last, foreign capital
market and government’s bonds was down to only around Rp.39 trillion against
the same period in 2014 amounting to Rp.170 trillion.
Although
there was still widening deficit in financial transaction, generally speaking
DTB end of 2015 could be downsized to 2.2% of GDP. The amount was still close
to around 3% of GDP.
Meanwhile
BI estimated growth of Indonesia’s economy at around 5.2% - 5.6% in 2016. The
Government lowered growth assumptions 5.3% against 5.5% in 2016.
From
the above review Rupiah position in 25/9 was still volatile in the range of Rp.14,000
– Rp.14.600 per USD. This week Rupiah was projected to be in the range of Rp.14.400
– Rp.14,500 per USD because there was overshoot in Rupiah collection so chances
for strengthening was still open.
The Capital Market
Index
of IHSG was closed to weaken quite significantly at 2.29% (99.61 points) by end
of session on Wednesday (13/9) last. IHSG dropped to the level of 4,144.427.
Index of LQ 45 was also down by 3.02% to 707.864. IHSG’s lowest position was at
4,239.135.
IHSG
nose dived as the global market was again worried about China’s economy.
China’s manufacturing data dropped to the lowest level in the last 6.5 years.
Jakarta Islamic index (JII) also dropped by 2.53% to 367,99 points. Index of
Sri KEHATI dropped by -3.09% to 240.92 points. Net sell by foreign investors
was worth Rp.689 billion while transaction value was Rp.4,896 trillion with
trade volume of 7.016 billion shares.
Meanwhile
index at Asian stockmarket weakened during closing session last Wednesday
(23/9). China’s Manufacturing data dropped to 47.0% in September, the lowest in
6,5 years. The data flared up anxiety once more about China’s economic growth.
Negative
sentiment was still lurking although China’s President Xi Jin Ping made his
defensive statement that China’s economy remained at growth and remained
stable. President Jiiping delivered his first speech during his state visit to
the USA.
All
in all Index of Hang Seng dropped by 2.26% (493.67 points) to the level of
21,302.91 points. Index of Shanghai also weakened by 2.19% (69.73%) to the
level of 3,115.89 points. The same was with Straits Times Singapore which
weakened by 0.56% (15.96 points) to 2,852,51 points. Meanwhile index of shares
in Europe’s market strengthened in fluctuative trading amidst axiety China’s
economy.
Benchmark
index of Europe’s stockmarket inched up by 0.3%. Index FTSE 100 England rose by
0.37% to the level of 5.957.77 points.
Index of DAX 30 Germany rose by 0.20% to the level of 9.589.70 points. Index of
CAC 540 France inched down by 0,02% to the level of 4,427.79 points. The
notable thing was that Weall Street was closed negative in the past 3 days
since Tuesday till Thursday last week.
Uncertainty
of FFR increase by the Fed and global economic slowdown accounted for low stockmarket. Beside there was
pressure To sell on Caterpillar, the biggest producer of mining and
construction in The world fell by 6.3% to USD 65.8 because the company planned
to dismiss 10,000 workers due to low economic condition with effect on mining
and energy sector. STOP AT 03.35
Index
of Dow Jones fell by 78.57 points (0.48%) to 16,201.32. Index of S&P 500
dropped by 6.52 points (0.34%) to 1,932.24. meanwhile index of nasdaq fell by
18.27 points (0.38%). There were around 7.7 lots being transacted above daily
average numbering 7,5 billion shares.
Caterpillar
shares dropped by 6.3% after announcing axing of cost in anticipating energy
and minery crisis. Caterpillar could dismiss more than 10.000 workers and 20
facilities until 2018. Other industrial giants were also weakening including
member of Dow General Electric and Honeywell International, both slumped by 15
points.
Governor
of the Fed Janet Yellen said that she was expecting FFR could be increased this
year. The stockmarket feared global economic slowdown as Yellen made the
statement.
As
the Fed decided to increase FFR respond came from players of the stockmarket
from all over the world especially developing countries like Indonesia. All in
all IHSG remained to be under pressure.
In
fact the Fed’s decision to maintain FFR at low level in the past few years
could mean positive signal to IHSG.
As
Yellen signaled that the Fed might probably increase FFR, it could mean
opportunity to players of the stockmarket to be more aggressive in buying cheap
shares. Moreover there was news that realization of state’s expenditure by August
31, 2015 had reached Rp.1,054.2 trillion or 53.1% of total ceiling of
expenditure in APBN-P 2015.
Meanwhile
realization of state’s income had reached Rp.867.5 trillion or 49.2% of target
in APBN-P 2015. Marketplayers were expecting budget absorption could be the
catalyst of Indonesia’s improved economy in Semester 2 this year which would
strengthen IHSG.
Development
of the infra-structure sector including construction, energy, food including
agro product and maritime business including tourism could be the catalysts for
domestic stockmarket performance.
So
it was advisable for the Monitory authorities in Indonesia to scheme up a
strategy to keep capital from flowing out by accelerating executing of Economy
Package policy Chapter I and to make chapter II come sooner. Hence the position
of IHSG last week end moved in the range of 4,250 – 4,300 and to continue this
week in the range of 4,300 – 4.350 as local investors returned after correction
on IHSG and sectoral index which was too sharp in the weeks before. (SS)
Business New - September 30, 2015
