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Indonesia’s current account deficit is expected to widen to the range of 3.30 – 3.40 percent of the country’s gross domestic product (GDP) in the third quarter of 2018, above the 3.0 percent of GDP threshold that is usually considered to separate a sustainable from an unsustainable deficit.
The central bank of Indonesia (Bank Indonesia) left its benchmark interest rate (the BI 7-Day Reverse Repo Rate) unchanged at 5.75 percent at the October 2018 policy meeting (22-23 October). Meanwhile, the deposit facility and lending facility rates were kept at 5.00 percent and 6.50 percent, respectively.
On Monday (08/10) Indonesia Investments released the September 2018 edition of its monthly research report. The report aims to inform the reader of the key political, economic and social developments that occurred in Indonesia in the month of September 2018 and also touches upon key international developments that impacted on the Indonesian economy.
While most of the focus, rightfully, remains centered on the disaster in Central Sulawesi where presumably thousands of people have lost their lives due to a big earthquake and devastating tsunami, it is worth keeping an eye on the Indonesian rupiah exchange rate which is again facing heavy pressures and has now slipped beyond the psychological boundary of IDR 15,000 per US dollar.
The central bank of Indonesia (Bank Indonesia) raised its benchmark interest rate (the seven-day reverse repo rate) by 25 basis points (bps) to 5.75 percent at the two-day policy meeting that was concluded on Thursday (26-27 September 2018). Also the deposit facility and lending facility rates were raised by 25 bps to 5.00 percent and 6.50 percent, respectively.
In line with expectations, the US Federal Reserve decided to raise its benchmark interest rate by 25 basis points to the range of 2.00 - 2.25 percent at the September policy meeting that was concluded on Wednesday 26 September 2018. It is the Fed's eight rate hike since 2015 and the third one so far in 2018.
Indonesian Finance Minister Sri Mulyani Indrawati does not expect to see a change in Indonesia's current account deficit in the third quarter of 2018 as government efforts to curtail the deficit have only been started in September, while the July and August trade balances showed significant deficits.
Those who invest in Indonesian assets (or actually in any assets across the globe) will need to carefully monitor two matters this week. First, the upcoming Federal Reserve policy meeting (scheduled for 25-26 September 2018) that will most likely result in another interest rate hike. And secondly, the latest developments in USA-China (trade) relations.
On Friday 07 September 2018 Indonesia Investments released the August 2018 edition of its monthly research report. The report aims to inform the reader of the key political, economic and social developments that occurred in Indonesia in the month of August 2018 and also touches upon key international developments that impacted on the Indonesian economy.
Concerns about emerging market contagion is pushing emerging market stocks, currencies, and bonds in deep red territory on Wednesday (05/09). Indonesia leads the decline with its benchmark Jakarta Composite Index plunging slightly over 3 percent in the first one-and-half hours of trading, while the rupiah is sliding toward the IDR 15,000 per US dollar level (its weakest position since the Asian Financial Crisis in the late-1990s).
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Indonesia's main stock index (IHSG) went up 0.89 percent to 4,720.44 on Thursday (18/07). The index was supported by developments in the United States. On Wednesday (17/07), Ben Bernanke spoke to the US Congress and said that the Federal Reserve is likely to continue its bond-buying program in 2013 and may gradually withdraw the quantitative easing program in 2014. But only if economic recovery of the US provides the good context. This message supported the IHSG although foreign investors continued to record a net sale.
Amid widespread profit taking, Indonesia's main stock index (IHSG) was able to post another day of limited growth on Tuesday (16/07). Asian stock indices, including the IHSG, were supported by rising American stock indices on Monday (15/07). Investors seem to be confident that Q2-2013 results of various Indonesian companies are positive and therefore engaged in stock trading although foreign investors were still mostly selling their Indonesian assets. At the end of today's trading day, the IHSG rose 0.18 percent to 4,644.04.
After finishing last week with three consecutive days of gains, Indonesia's main stock index (IHSG) reached up to 4,633.11. However, its movement is still rather volatile. Property, finance and consumption stocks were sold by investors after seeing the benchmark interest rate raised by Bank Indonesia (by 50 bps to 6.50 percent) on Thursday (11/07), while metal stocks formed the main supporter of the index at the end of the week. Trading volume in the regular market hit 5.2 trillion and foreigners recorded net purchases of IDR 288 billion.
Indonesia's main stock index (IHSG) was able to continue its rise on Thursday (11/07) despite mixed markets in the United States and Europe, that were waiting for the release of the Federal Reserve minutes, on the previous day. The minutes and Ben Bernanke's speech indicate that the bond-buying program will be continued for a while and this made investors decide to buy Indonesian assets, particularly large cap stocks such as Unilever Indonesia, Bank Mandiri and Indocement Tunggal Prakarsa.
Today, Bank Indonesia surprised many analysts and investors by raising its benchmark interest rate by 50 bps to 6.50 percent. Indonesia's central bank assessed that this measure is the correct one with regard to supporting the IDR rupiah (which is one of the worst Asian currencies against the US dollar this year) and to fight higher inflation after the government decided to cut fuel subsidies in June. It expects inflation to peak in July at about 2.3 percent (month to month) but to moderate soon afterwards.
Indonesia's central bank (Bank Indonesia) expects that economic growth of Indonesia in 2013 will not meet the government's target as has been set in the revised State Budget (APNB-P). Last month, both government and parliament of Indonesia agreed on a revised GDP growth assumption of 6.3 percent. However, Bank Indonesia believes that, due to slowing domestic consumption and investments in the current global economic context, the growth is more likely to fall between 5.8 and 6.2 percent.
Higher American indices after the release of ADP employment change and lower initial jobless claims made an indirect impact on Asian stock indices, including Indonesia's main stock index (IHSG) on Thursday (04/07). Investors used the positive outcomes of these data to start purchasing stocks, although in limited quantities. Foreign investors, however, are still selling more Indonesian shares than they buy, which subsequently results in limited growth of the IHSG on Thursday (04/07). The index grew 0.10 percent to 4,581.93.
Indonesia's main stock index (IHSG) took another large blow on Wednesday (03/07). The index fell 3.20 percent to 4,577.15 points as investors were worried after reading the revised outlook of the World Bank. The institution downgraded its forecast for economic growth in Indonesia in 2013 from 6.2 percent to 5.9 percent. Higher inflation, because of the recent subsidized fuel price hike, is expected to result in lower domestic consumption. The IDR rupiah posted a slight weakening to IDR 9,941.
Weakening American and European stock indices on Tuesday (02/07), as investors mostly refrained from trading ahead of Wednesday when a number of important US economic data are released, caused negative market sentiments in Asia today (03/07). Moreover, the market responded negative towards the World Bank's July report in which the outlook for economic growth of Indonesia in 2013 was cut to 5.9 percent (from 6.2 percent). Lastly, a gap at 4,620 - 4,644 still needed to be closed.
The World Bank has revised down its forecast for economic growth in Indonesia in 2013 to 5.9 percent from its original estimate of 6.2 percent. Similarly, the institution has altered its forecast for economic growth in 2014 from 6.5 percent to 6.2 percent. The revised figures were published in July's edition of the Indonesia Economic Quarterly (IEQ), titled 'Adjusting to Pressures'. The World Bank's forecast is also in sharp contrast with the GDP assumption of the Indonesian government, which puts economic growth in 2013 at 6.3 percent.
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