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In March 2022 the US Federal Reserve started to tighten its monetary policy in an aggressive manner to combat high US inflation that –at one point– touched a 40-year high.
Before we give an update on the monetary policy of Indonesia’s central bank (Bank Indonesia), it is worth mentioning that Bank Indonesia Governor Perry Warjiyo was appointed for another five-year term (2023-2028) as the central bank’s chief.
On Thursday (6 April 2023), Indonesia Investments released the March 2023 edition of its monthly report. In this report we offer in-depth analyses of the key economic, political and social matters that impacted on Indonesia in the month of March 2023.
On 06 March 2023, Indonesia Investments released its latest monthly report titled 'Normalizing Economic Growth'. As usual, we aim to present in-depth analyses of topics that are relevant in the context of economic, political and social developments in Indonesia.
The central bank of Indonesia (Bank Indonesia) raised its benchmark interest rate (BI 7-day reverse repo rate) by 25 basis points (bps) after concluding its two-day policy meeting on 18-19 January 2023. Indonesia’s benchmark rate now stands at 5.75 percent. It also raised its deposit facility and lending facility rates by 25 bps to 5.00 percent and 6.50 percent, respectively.
On 5 January 2023, Indonesia Investments released the December 2022 edition of its monthly report. This report discusses and analyses a number of important economic and political topics (all related to Indonesia) that were relevant in the month of December 2022.
As expected, the central bank of Indonesia (henceforth: Bank Indonesia) decided to raise its benchmark interest rate (the 7-Day Reverse Repo Rate) by 25 basis points (bps) to 5.50 percent after concluding its latest (two-day) monetary policy meeting on 21-22 December 2022. Meanwhile, it also decided to raise the deposit facility and lending facility rates by 25 bps to 4.75 percent and 6.25 percent, respectively.
On 7 November 2022 Indonesia Investments released the October 2022 edition of its monthly report. Our report presents in-depth and independent analyses of a range of economic, political and social subjects that have been in the news in the month of October 2022.
Last month we stated that Indonesia’s central bank (Bank Indonesia) might just be at the start of a (prolonged) monetary tightening cycle. After all, higher interest rates is what we see happening across the world; a development that is led by the Federal Reserve (Fed) that has been aggressively raising its benchmark interest rate to fight inflation. This then causes capital outflows from most other parts of the world.
As Indonesia’s central bank (Bank Indonesia) was very late in terms of tightening its monetary policy amid the latest global tightening cycle – and the US Federal Reserve continued its hawkish stance with another 0.75 percentage point hike in September 2022 – it has some catching up to do.
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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.
Asian stock indices were up on Thursday (27/06) after economic growth of the United States in Q1-2013 was lower than expected. Paradoxically, this had a positive effect on global stock indices as speculation arose that the disappointing growth rate would convince the Federal Reserve to continue its quantitative easing program. It also had a good affect on Indonesia's main stock index (IHSG), which gained 1.92 percent and ended at 4,675.75. The index was well on its way to close a gap (at 4,743-4,801) but was blocked by mixed European openings.
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