ICRA Indonesia, an independent credit rating agency and subsidiary of ICRA Ltd. (associate of Moody's Investors Service), publishes a monthly newsletter which provides an update on the financial and economic developments in Indonesia of the last month. In the March 2014 edition, a number of important topics that are monitored include Indonesia's inflation rate, the trade balance, the BI rate, the IDR rupiah exchange rate, and gross domestic product (GDP) growth. Below is an excerpt of the newsletter:
Inflation: March witnessed a rationalization of inflation on account of recovery from adverse weather, prompting an improvement in the channels of distribution. As a result, there was a correction in prices of commodities such as eggs, chicken meat, chili, etc. The headline inflation rose slightly at 0.08 percent on month-to-month (mtm) basis and 7.32 percent on year-on-year (yoy) basis, an improvement from 0.26 percent and 7.75 percent respectively in February 2014. Lower yoy inflation was also due to the higher base effect of March 2013, when the mom inflation was 0.47 percent. Core inflation, on the other hand, increased to 4.61 percent compared to 4.50 percent in February. This increase was attributed to higher demand for transportation, communication and goods in relation to the impending elections.
Trade Deficit: the trade balance swung to a surplus in February 2014 at USD $0.79 billion as compared to a deficit of USD $0.43 billion in January. The surplus resulted mainly from shrinkage of non oil & gas imports, where the trade surplus increased to USD $1.59 billion from USD $0.60 billion prompted by the recovery of the Indonesian rupiah exchange rate as well as moderation of demand. The oil & gas trade balance continued to remain in deficit, although with a contraction of 0.5 percent over the previous month. While exports too fell by 3 percent on yoy basis, the net effect was surplus due to a greater decline of imports by around 10 percent yoy.
Foreign Exchange Reserves: the foreign exchange reserves stood at USD $102.6 billion at the end of March. The reserves reduced slightly from USD $102.7 billion at the end of February. This difference is mainly on account of government debt repayments rather than any macroeconomic factor. The capital inflow into the country was robust in March, during which, around USD $2.7 billion came into the country and contributed to an aggregate Q1-2014 inflow of USD $5.7 billion.
Car & Motorcycle Sales: while the March figures are awaited, the month of February 2014 sold 111,765 of car units, an increase of 8 percent over January. The yoy growth was 8.2 percent. It showed improvements over the previous month when the mom and yoy growth reached at 5.9 percent and 7 percent, respectively. Motorcycle sales too rose in February, recovering from a drop in the previous month. As many as 679,086 motorcycles were sold, up 17.2 percent mom and 4.6 percent yoy, compared with a 10.3 percent yoy fall in January.
Jakarta Composite Index (JCI): the JCI which closed at 4,620.22 points on 28 February 2014, climbed gradually, backed by various positive macroeconomic indicators such as an improving rupiah and controlled inflation, before closing at 4,768.28 on 28 March 2014. The political announcement of Jokowi as a presidential candidate also supported buoyancy of the index during mid-March. The index closed further higher at 4,921.40 on 8 April 2014.
BI Rate: Indonesia's central bank (Bank Indonesia/BI) kept the benchmark interest rate of 7.5 percent in April, maintaining the rate since November 2013, considering the easing pressures the on rupiah and current account deficit. This decision was expected following BI's February announcement of a hawkish policy and maintaining a stable and tight economic policy throughout 2014. In fact, as a fallout of this policy, BI also had revised its GDP growth estimate towards the beginning of March to a 5.5-5.9 percent range instead of the earlier 5.8-6.2 percent range. The revised estimates factor in the impact of tight monetary policy on the overall demand and investments.
Rupiah Exchange Rate: the rupiah continued its appreciation and closed at IDR 11,404 per US dollar on 28 March 2014, as compared to IDR 11,634 per US dollar at the end of February. The recovery in March has largely been prompted by an improvement in the economic fundamentals as compared to the recovery in February, which was mainly on account of adverse economic news in the US. Overall, during Q1-2014, the rupiah gained back 7 percent on a net basis against the US dollar, its strongest 3-month appreciation since Q2-2009. As on 8 April 2014, the rupiah had closed at IDR 11,309.
Government Debt Program: during March 2014, the Indonesian government continued its earlier streak of debt program, marked by three main issues. First, the government sold IDR 10 trillion worth of conventional bonds. This was followed by an Islamic bonds issue of IDR 461 billion, regular bonds of IDR 15 trillion as well as USD $350 million. All of the issues except Islamic Bonds were oversubscribed, indicating a general positive sentiment about the economy.
Bond Yield: the 10-year government bond yield stood at 7.96 percent on 28 March 2014 compared to 8.39 percent a month earlier. The yield kept reducing for most of the month, indicating an increasing confidence in the improved fundamentals. As on 8 April 2014, the yield further closed at 7.85 percent.
Oil: the crude oil prices (Western Texas Intermediate/WTI) closed at USD $101.49 per barrel on 28 March 2014, as compared to the previous month’s USD $102.59 per barrel due to supply growth from the Middle East as well as macroeconomic and geopolitical stability overall during the month, including further developments in the Ukraine crisis. The prices are expected to reduce further over the short term as Middle Eastern refineries speed up their output after a seasonal drop during the winter. As on 8 April, however, the crude oil closed at USD $102.56 per barrel on account of a return of geopolitical adversities in Ukraine.
Coal: the coal prices have continued to drop in March on the back of weaker Chinese numbers, closing at USD $74.4 per metric ton (MT) on 28 March as compared to USD $77.55 MT in February. The prices are expected to remain subdued over the short term. The prices closed at USD $73.60 MT on 8 April.
Crude Palm Oil (CPO): as on the end of March, the CPO prices stood at USD $808.09 per ton, lower than USD $855.36 per ton in February. This correction was subsequent to the end of uncertain weather in Malaysia and Indonesia and the expectation of improvement in the output from them as a result. CPO closed at USD $798.07 per ton on 8 April.
Gold: gold prices have been corrected to USD $1,295.6 per ounce by the end of March as compared to USD $1,321.60 per ounce at end-February. This has been due to the recovery of economic fundamentals globally. On 8 April, the gold price closed at USD $1,309.10 per ounce.