Economic Briefing
_______________________________________________________________________________________________
Danamon Economic & Market Research
1
On BI’s Rate Hike; and
Strengthening Currency
Aug-08
(Actual)Aug-08
(Forecast)Aug-08
(Consens.)
Jul May
BI Rate
9.00
9.00
9.00
8.75
8.50
Source: BPS, CEIC, Bloomberg, *Danamon Estimates
5 August 2008
Economic Highlights
•
Bank Indonesia today raised its overnight policy rate by 25bps to
9.00%. Their rhetoric still seems somewhat hawkish; BI cited “risk of
inflation pressure going forward” and noted that the rate hike “would
not disrupt economic activity”.
•
We still believe that more 25bps hikes are forthcoming, before the BI
rate peaks at 9.50% by year-end. (Expect also BI’s continued presence
in the FX market and proactive liquidity management in the money
market). In our view, the risk of erring on BI’s 6.5% - 7.5% 2009
inflation forecast is skewed to the upside.
IDR Bond Market: Charging on…
•
BI’s rate move has already been priced-in. But contrary to our earlier
expectation, positive sentiment appears to be resilient even after the
higher than expected July inflation announcement. Foreign investor
appetite also remains strong. (Foreign holdings of government bonds
rose by 6% in July to Rp100tn or 19% of the total amount
outstanding).
•
We are still concerned over potential upside surprises to inflation (see
our report dated 1-Aug-08: “July Inflation – It’s Still High). However
the recent decline in oil prices and bullishness over the rupiah may still
fuel a downward shift of the yield curve in the near term, especially for
the mid to long-end tenors.
FX market: Can the IDR strengthen further?
•
The recent strengthening of the IDR against the USD appears to have
been driven to some extent by “hot money”. Foreign ownership of
SBIs, which has a volatile history, doubled to Rp62tn as of end-July
compared to the previous month. (This equals 35% of the total
amount outstanding).
•
We think that any further strengthening of the rupiah should be limited
in extent. If BI is to continue “managing” FX market volatility, they
should be keen to prevent a dramatic strengthening of the rupiah just
as they were keen on cushioning the heavy rupiah selling pressure in
Q1 and Q2. Note that BI’s foreign reserves have started to increase
again recently to US$60.6bn as of end-July, from US$59.5bn a month
earlier.
Helmi Arman Economist / Bond Strategist
Anton Gunawan
Chief Economist
Anton Hendranatta
Statistician
Danamon Economic & Market Research 2
In a widely expected move, Bank Indonesia today raised
its overnight policy rate by 25bps to 9.00%.
Chart 1. Indonesia Policy Rate and CPI Inflation
The yield curve shifted downward compared to a week
ago. Market appetite appears to be resilient despite July’s
high inflation number (11.90% y-o-y).
Chart 2. IDR Sovereign Yield Curve
Aug-05 Feb-06 Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 20
18
16
14
12
10
8
6
4
BI rate
CPI (% y-o-y) %
Source: CEIC; Jun-08 onward is based on (2007=100) Source: Bloomberg
The IDR has been strengthening against the USD over
the past month. However we think the extent of the
appreciation should be limited from here.
Chart 3. IDR/USD: Spot, Mid
Managing volatility should also mean preventing a dramatic
appreciation of the rupiah (not just depreciation). Note that
Indonesia’s foreign reserves have started to increase again
since end-June.
Chart 4. Indonesia Foreign Reserves
53,000 54,000 55,000 56,000 57,000 58,000 59,000 60,000 61,000
Jan 7
Jan 23
Feb 6 Feb
22 Mar
6 Mar 1
9 Apr
7 Apr
23 May
7 May
23 Jun
6 Jun
23Jul 7 Jul 2
3
ID: Foreign Reserves
Danamon Economic & Market Research 3
Selected Economic Indicators
2005 2006 2007 2008E* 2009E*
National Accounts
Real GDP (% yoy) 5.7 5.5 6.3 5.9 6.3 Domestic demand ex. Inventory (% yoy) 5.8 3.7 6.0 6.1 7.3 Real Consumption: Private (% yoy) 4.0 3.2 5.0 5.0 5.2 Real Gross Fixed Capital Formation (% yoy) 10.8 2.9 9.2 8.3 10.0 GDP (USD Bils.) — nominal 287 364 433 502 577 GDP per capita (USD) — nominal 1,308 1,641 1,925 2,205 2,502 Open Unemployment Rate (%) 10.3 10.3 9.8 8.0 7.1
External Sector
Exports (% yoy, US$) 19.7 17.7 13.2 7.0 8.0 Imports (% yoy, US$) 24.0 5.8 22.0 12.0 12.0 Trade balance (US$ Bils.) 28.0 39.7 39.6 38.7 38.4 Current account (% of GDP) 0.1 3.0 2.5 1.6 1.1
External debt (% of GDP) 48 37 30 26 23
International Reserves-IRFCL (US$ Bils) 34.0 42.6 56.9 64.0 70.0
Import cover (months) 4.3 4.5 6.2 6.0 5.6
Currency/US$ (period average) 9,711 9,167 9,139 9,215 9,275
Other
1M SBI (BI policy) Rate (% period average) 9.0 11.9 8.6 8.8 9.3 Consumer prices (% period average) 10.5 13.1 6.4 9.4 n/a Fiscal balance (% of GDP; FY) -0.5 -1.0 -1.3 -1.9 -1.7
S&P's Rating - FCY B+ BB- BB- BB- BB
Danamon Economic & Market Research 4
Economic and Market Research
Anton H. Gunawan
Chief Economist
+62 21 5799-1466
Helmi Arman
Economist / Bond Strategist
+62 21 5799-1563
Anton Hendranata
Econometrician
+62 21 5799-1563
PT Bank Danamon Indonesia, Tbk.
Menara Bank Danamon, 8th Floor
Jalan Prof. Dr. Satrio Kav. E IV #6
Mega Kuningan, Jakarta 12950
INDONESIA
***
Facs: +62 21 5799-1048
ANALYST CERTIFICATION
I, Helmi Arman, hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all of the
subject issuer(s) or securities. I also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or views in this report.
