June 14, 2016 edition
Disappointing US employment numbers is likely to delay the planned US dollar interest rate hike. Last week, Federal Reserve Chief Janet Yellen stressed uncertainties faced by the US economy, prompting analysts to project a delay in a US dollar interest rate hike to August or September of this year. Coming at the first day of the Ramadhan fasting month, it gave the rupiah and other regional currencies some breathing room, with the rupiah strengthening and stabilizing at Rp13,200 per US dollar. But Bank Indonesia has also been quite active in defending its currency, reflected by the drop in its exchange reserves to US$103.6 billion from US$107.7 billion a month ago. The question is whether this trend can be maintained and whether the central bank will move to stimulate the economy by further bringing down the rupiah's current 6.75 percent benchmark interest rate.
The month of Ramadhan always brings with it a positive boost to the economy as consumption rises. But this surge, if not managed well with sufficient food supplies, could also raise prices. Indeed, this is already happening. Inflation is always higher during Ramadhan, but it has a tendency to shoot far beyond Bank Indonesia's inflation target. Should this occur, it makes moving down the rupiah interest rate more difficult, even with a more stable currency.
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June 7, 2016 edition
Indonesia has missed an opportunity to graduate this month. Last Wednesday, Standard & Poor's (S&P) global ratings confirmed that Indonesia's rating will remain in non-investment grade territory. In S&P language, that means BB+, just one notch short from getting out of the junk category. No offence taken, in financial market lingo, non-investment grade bond is simply a junk bond.
Two weeks ago, the hope of passing that critical one notch emerged when an S&P entourage came to Jakarta for an evaluation, and even paid a short visit to President Joko Widodo. The government's public relation machinery wasted no time in flooding the media with positive signals. Officials boasted that Indonesia deserves to get an investment grade rating.
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May 31, 2016 edition
Last week, we witnessed several global events, each raising doubts of a quick Indonesian economic recovery this year. Even Bank Indonesia has recently revised down their 2016 growth projections from their earlier 5.4 percent estimate to its current subdued 5.2 percent. Plus, several government options to spur growth are quickly narrowing down to a limited few.
One of these events was last week's G-7 meeting in Tokyo, where seven major industrialized countries failed to reach an agreement on how best to coordinate monetary and fiscal policies to revive their lackluster economies. For example, the Japanese government still wanted to prevent its currency from strengthening further so it can push exports and limit imports, which was promptly opposed by the United States. There were also differences on how best to push growth. Some preferred a loose monetary policy that brings down interest rates, while others felt that a more aggressive fiscal policy, involving more government spending was called for. Unfortunately, this means that global economic growth will remain weak and cannot be relied on to boost Indonesian economy through exports.
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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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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