Strong Rebound in Indonesia's IHSG, BI Rate Hike Well-Received
On Friday (14/06), the main stock index of Indonesia (IHSG) jumped 3.32 percent to 4,760.74 points as financial market participants were optimistic about the effects of the higher central bank interest rate that was announced the day before. Moreover, Indonesia's IHSG was supported by a green wave across Asian stock markets, which was partly due to a strong rebound in markets in the United States on Thursday (13/06). Stocks in Indonesia's banking and property sectors were the top-gainers on Friday's trading day.
There were also reports in Indonesian media that various state-owned enterprises purchased stocks on Friday to support the country's main index, which had shown a significant decline during the past week.
Indonesia’s central bank (Bank Indonesia) raised the benchmark interest rate (BI rate) by 25 bps to 6.0 percent on Thursday in order to support the weakening IDR rupiah as well as anticipating higher inflation triggered by the government's intention to increase the price of subsidized fuel this June. Reduction in the price of subsidized fuel is needed to reduce the widening budget deficit of Indonesia. Last month, a 44 percent increase in fuel prices was announced but the exact date of implementation remains unknown.
Meanwhile, Indonesia's central bank also revised up its forecast for inflation in 2013 from an initial target of 4.9 percent to 7.76 percent (or 8 percent if Bank Indonesia fails to mitigate the effects of the subsidized fuel price increase).
After the strong rebound on Thursday, stock indices in New York weakened on Friday (14/06) as a number of economic data were negative. Moreover, the International Monetary Fund (IMF) downgraded its forecast for economic growth in the United States in 2014. US consumer confidence weakened slightly in June, while US industrial production stagnated in May. These macroeconomic data are also expected to temper the Federal Reserve's intention to scale back its quantitative easing program. The IMF expects the Fed to continue the stimulus program at least up to the end of this year.
The Dow Jones Index lost 0.7 percent, while S&P 500 and NASDAQ both fell 0.6 percent on Friday. Similarly, European indices mostly recorded limited declines at the end of Friday.
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