Weakening global stock indices meant that it would be difficult for the benchmark stock index of Indonesia (Jakarta Composite Index or IHSG) to continue its upward movement on Tuesday (05/08). Moreover, there were few positive sentiments originating from the Archipelago as Indonesia’s Q2-2014 GDP growth (+5.12 percent year-on-year) was below expectation and the country’s trade balance showed a deficit of USD $300 million in June 2014. Meanwhile, the Indonesian rupiah exchange appreciated slightly.
The Jakarta Composite Index fell 0.20 percent to 5,109.09 points on Tuesday (05/08).
The slowing GDP growth of Indonesia was no surprize as the global economic recovery is yet to gain full momentum and thus impacts negatively on Indonesian exports. Furthermore, the central bank’s tighter monetary policy since 2013 has curbed domestic consumption.
Market participants expect that Indonesia’s central bank (Bank Indonesia) will keep its benchmark interest rate (BI rate) at 7.50 percent in August. This may imply that the GDP growth result in the following quarter will improve. Expectation that the BI rate will not be altered managed to support the rupiah exchange rate. The rupiah was also supported by the appreciating Australian dollar after Australia’s central bank left interest rates unchanged as well as the higher AIG service index and the country’s declining trade deficit. However, China’s lower HSBC China Services PMI had a negative impact on Asian stocks.