May 24, 2016 edition
Global markets received a sudden shock last Thursday. Speculations about the next Federal Reserve (Fed) rate hike returned and spread rapidly like a haunting specter. The info spread from the announcement of the Fed's meeting notes, which is obligatory for transparency purposes. It revealed that in last April's meeting, the Fed's Open Market Committee discussed the possibility of a June rate hike should US economic data and labor market continue to improve.
This recent round of speculation drove the US dollar up, while gold prices took a hit. Stock prices in many countries fluctuated. Naturally, the rupiah suffered because of it. The price of one US dollar in Bank Indonesia soared to Rp13,534, the highest level since February 19.
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More Economy articles in other editions
May 17, 2016 edition
Last week, the government announced this year's first-quarter growth rate reached 4.92 percent, slightly higher than the 4.73 percent growth for the same period last year. Earlier, April inflation, year-on-year, was reported to drop to 3.60 percent, still comfortably within Bank Indonesia's inflation target range. Also, the rupiah remained stable at Rp13,300 per US dollar, just slightly weaker than previous week's Rp13.100 per US dollar level.
In addition, a team from Standard & Poor's (S&P) recently met with the government, which points to a possible rise in Indonesia's sovereign ratings, which for quite some time have languished at the BB+ level, one notch below investment grade. So far, S&P is the only major global rating agency that has not issued Indonesia an investment grade, as Moody's and Fitch have done.
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May 10, 2016 edition
A big bet is going on in financial markets. Its main player is Kyle Bass, a Texas fund manager who had his big moment during the 2008 global crisis. At that time, Bass's prediction about the collapse of subprime mortgages was vindicated. This time, he is betting against the People's Republic of China.
Bass is convinced that the renminbi will fall apart. The Chinese economy cannot shoulder the bad debt gnawing at its banking sector. Not only that, Bass calculated that China's foreign reserves are not as big as the official numbers say. Bass has amassed billions of dollars for the sole purpose of investing against the renminbi.
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May 3, 2016 edition
Last week, the banking sector began to publicize its first-quarter performance. In fact, some banks already held their annual shareholders' meeting. Although they are still optimistic of improved performance in this year's second half, the poor first-quarter results throw some doubt on whether the banking sector's recovery will actually take place this year.
In January 2016, data showed bank credit growing at just 10 percent from a year ago. With sluggish credit growth, the banks have been aggressively lowering their deposit faster than their loan rates. This explains the rise in the sector's net interest margin (NIM or the difference between deposit and loan interest rates) to 5.6 percent in January this year from 4.2 percent last year. However, this was not enough to cover the rising cost of non-performing loans (NPLs), due to slower economic growth. Sector-wide NPLs rose to 2.7 percent in January this year from 2.4 percent last year, while the sector's profitability dropped 5 percent over the same period. The worry is how far last year's weak growth will extend into 2016.
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April 26, 2016 edition
Central banks are impotent and out of ammunition. There is much talk about this ridicule among economists, seeing central bankers' futile efforts to recover optimism and economic growth. No less than Mervyn King, former Bank of England governor, had to admit that sense of powerlessness in his new book The End of Alchemy.
King's confession carries some truth. Various central banks, like those in Europe and Japan, have deployed a myriad of policies-from quantitative easing, which is basically printing money to buy government bonds, to squeezing the interest rates to a negative level. And still, the economy refuses to rise from its stupor.
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April 19, 2016 edition
Early this year, after the lowering of Bank Indonesia's interest rate to 6.75 percent, the rupiah surprisingly strengthened to Rp13,100 per US dollar level from Rp14,000 in December last year. Incoming foreign portfolio funds have helped this trend as it bought our government bonds. This is not surprising, given the 7 percent interest on our government bonds, compared to near zero rates in advanced market bonds. Inflation at home has also been kept at 4.45 percent and the current account deficit at 2 percent of GDP. Still, market players have doubts whether this positive trend will last.
This is because business activity remains weak. For the first few months this year, auto and motorcycle sales have not shown any significant improvement. With exports still sluggish and consumer spending low, the sole driver of economic growth now is government spending. But with tax revenue still below target, there are doubts whether this can be relied on.
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April 12, 2016 edition