Review of Liquidity Stance: October 2019
On Bᴏᴀʀᴅ ᴏғ Gᴏᴠᴇʀɴᴏʀs ᴍᴇᴇᴛɪɴɢ Oᴄᴛᴏʙᴇʀ 24, 2019
Bᴀɴᴋ Iɴᴅᴏɴᴇsɪᴀ: Mᴏʀᴇ ᴄᴜᴛ ᴏꜰ 25ʙᴘ
𝐓𝐨 𝐬𝐩𝐮𝐫 𝐠𝐫𝐨𝐰𝐭𝐡 𝐦𝐨𝐦𝐞𝐧𝐭𝐮𝐦
Bank Indonesia (BI) Board of Governors (BOG) monthly meeting on 23/24 October decided to cut reference rate BI7D-RRR another 25bp to 5%, the fourth since June this year. The decision is aimed to boost domestic growth while factoring in current external and national economic and social conditions.
𝐁𝐞𝐭𝐭𝐞𝐫 𝐠𝐫𝐨𝐰𝐭𝐡 𝐧𝐞𝐱𝐭 𝐲𝐞𝐚𝐫
BI, as stated by the Governor Perry Warjiyo during October BOG meeting media release, aims for an Indonesia GDP growth (see Graph 1) of close to 5.2% YoY this year (government outlook: 5.2% YoY ), while next year is expected to be in order of within higher than 5.2% YoY (government estimate 5.3% YoY).While Indonesia economic growth has been stagnating in the last quarters, BI expects activities may continue to speed up during the rest of the year. Several steps by the government to spur growth since early this year as well as accommodative monetary stance adopted since June have been reflected in encouraging indicators, we observe.
- 𝐏𝐨𝐬𝐢𝐭𝐢𝐯𝐞 𝐯𝐢𝐛𝐞𝐬
- 𝘾𝙧𝙚𝙙𝙞𝙩 𝙜𝙧𝙤𝙬𝙩𝙝 𝙤𝙛 10-12% 𝙔𝙤𝙔 𝙩𝙝𝙞𝙨 𝙮𝙚𝙖𝙧
BI sees credit growth of 10-12% YoY (see Graph 2) this year and 11-13% YoY in 2020. Despite the fact that credit hike were about stagnant within 9-10% YoY during June – August this year, issuances in the debt market showed an annual growth of 16.2% YoY end of September which indicated an higher trend.
- 𝑻𝒉𝒊𝒓𝒅 𝑷𝒂𝒓𝒕𝒚 𝑭𝒖𝒏𝒅 𝑮𝒓𝒐𝒘𝒕𝒉 𝒐𝒇 7-9 % 𝒀𝒐𝒀 𝒕𝒉𝒊𝒔 𝒚𝒆𝒂𝒓
In-line with financing increase, third party fund (see Graph 3) is expected to grow by 7-9% YoY in 2019, then higher to 8-10% in 2020.Less uncertainties both from external and domestic side is expected to give conducive grounds for higher activities in Indonesia banks system. Trade war between the United States (US) and China at present is at the last stage of Phase One signing deal. The series of negotiations have helped shape up the yields of the 10-year Treasury Notes back to 1.7% level in October as compared to its year-low of 1.5% at early September. In addition, Indonesia 2019 president election have been smoothly and fully completed by end of this month and is expected to boost higher growth.
- 𝑭𝒐𝒓𝒆𝒔𝒆𝒆𝒊𝒏𝒈 𝒃𝒓𝒊𝒈𝒉𝒕
Along the way, Indonesia business owners/executives, as indicated by the central bank surveys, have reflected optimism for the rest of the year (see Graph 4). The latest (3Q19) quarterly survey on c.3,700 business participants showed that index for prospect of investments activities in the 4Q19 points to 12.17pt (3Q19: 8.18pt, 2Q19:9.17pt). Furthermore, the index for prospect workforce employment in the 4Q19 pointed to 2.66pt (3Q19:1.4pt, 2Q19:2.47pt). At the other end, prospect of selling price in the 4Q19 is viewed as slightly higher as indicated by the index of 13.19pt (3Q19:13.15pt, 2Q19: 16.48pt)
- 𝐌𝐚𝐢𝐧 𝐦𝐚𝐜𝐫𝐨 𝐢𝐧𝐝𝐢𝐜𝐚𝐭𝐨𝐫𝐬 𝐠𝐫𝐚𝐝𝐮𝐚𝐥𝐥𝐲 𝐢𝐦𝐩𝐫𝐨𝐯𝐞𝐝
Indonesia central bank started to reverse into accommodative policy stance since mid this year (see Graph 5) at the time when domestic economy had mostly absorbed the impact of trade war between the US and China occurred since early last year. Indonesia government battled the trade war impact by means of several fiscal measures, such as, among others, eliminating unnecessary imports, to hike import tariffs effectively, diversifying export goods and destinations, and diversifying tax objects. The expansive monetary policy stance adopted has blended finely with the overall economic moves.
Indonesia budget deficit to GDP ratio declined further in August this year at 1.14% (2018: 1.76%, see Graph 6) to reflect better revenue base and more effective spending, in the midst of import peak last year. Especially higher import in 2018 has produced a current account deficit to GDP ratio highest at 3.6% at end 2018 (see Graph 7), but have improved in the next two quarters (1Q19:2.6%, 2Q19:3.0%, see Graph 7).
That being said that Indonesia indirectly been able to maintain its credit worthiness both from the fundamental and financial perspectives. The country managed to attract stable level of foreign financings (see Graph 8) total at USD394bn in August. Also, from monetary policy side, being ahead of the curve has permitted Indonesia to keep profitable yield spread to cause overseas lenders to come in (see Graph 9).
At the same time USDIDR steadily appreciating (see Graph 10), + 7.8% YoY (point-to-point on October 30), +3.1% since end of last year , being supported by real sector development as well as by monetary interferences by the central bank. Worth to note that Indonesia foreign reserves position was USD124.3bn at end of September this year or an equivalent of 7.0 months of import and debt payment, higher than 3 months required by International standard (August: USD126.4bn).
Meanwhile, Indonesia inflation rates have been well in-controlled (see Graph 11), within the BI target range since the last 12 months despite normal private consumption growth (2Q19:5.17% YoY, 1Q19:5.02% YoY). All in all, with banking system heading toward to a more efficient operation (see Graph 12), the Indonesian economy should poise to a better growth next quarters.
𝘊𝘰𝘯𝘵𝘢𝘤𝘵 𝘢𝘯𝘢𝘭𝘺𝘴𝘵: 𝘋𝘢𝘯𝘨 𝘔𝘢𝘶𝘭𝘪𝘥𝘢