mandiri - rupiah’s rise to help curb inflation 21feb11

8/7/2019 Mandiri - Rupiah’s rise to help curb inflation 21Feb11

http://slidepdf.com/reader/full/mandiri-rupiahs-rise-to-help-curb-inflation-21feb11 1/5

Macroscope - Economic Research | 22 February 2011

Please see important disclosures at the back of this report

Commodities Bloomberg

Ticker

18-Feb 11-Feb WTD

(%)

MTD

(%)

YTD

(%)

WTI (US$/barrel) USCRWTIC 86.2 85.6 0.7 -6.5 -5.7

CPO (US$/ton) PALMROTT 1,270.0 1,322.5 -4.0 -1.2 -1.2

Coal (US$/mt) API2YR1 TNRG 118.0 117.5 0.4 -0.6 -1.9

Gold (US$/troy ou GOLDS 1,390 1,357 2.4 4.3 -2.2

Rubber (US$/kg) IPHRBE1 426.5 426.5 0.0 0.0 0.0

Metals (Index) LMEX 4,429 4,398 0.7 2.5 5.1

18-Feb-11 O/N 1mo 3mo 6mo 9mo/12mo

SBI* 6.37 6.08 6.71

JIBOR 6.07 6.45 6.69 6.87 7.10

Avg Deposit (Rp) 6.49 6.57 6.69 6.69

Avg Deposit (US$) 1.00 1.03 1.11 1.12

Interest rate (%) 18-Feb 11-Feb WtD (bps) MtD (bps) YtD (bps)

BI rate 6.75 6.75 0.0 25.0 25.0

SBI 9mo 6.71 6.71 0.0 33.6 33.6

JIBOR O/N 6.07 6.08 -0.4 8.3 41.2

Deposit 1mo (Rp) 6.49 6.48 0.7 -0.8 -7.9

Deposit 1mo (US$) 1.00 0.99 1.3 -4.3 -8.6

Lending rate (Rp) 15.30 15.40 -9.7 9.0 -29.5

Lending rate (US$) 6.22 6.28 -6.0 -71.3 -44.0

10Y Govt Bond 8.80 9.01 -20.8 -6.1 119.4

18-Feb 11-Feb WtD (%

chg)

MtD (%

chg)

YtD (%

chg)

18-Feb 11-Feb WtD (%

chg)

MtD (%

chg)

YtD (%

chg)

Indonesia 3,501 3,392 3.24 2.71 (5.45) 8,870 8,935 (0.73) (1.98) (1.40) Thailand 996 950 4.84 3.26 (3.60) 30.55 30.77 (0.71) (1.23) 1.63

Philippines 3,851 3,749 2.72 (0.78) (8.33) 43.33 43.83 (1.13) (2.21) (1.07)

Malaysia 1,518 1,495 1.54 (0.16) (0.09) 3.03 3.05 (0.62) (0.88) (0.95)

Singapore 3,087 3,077 0.31 (2.92) (3.23) 1.27 1.28 (0.71) (0.45) (0.76)

Japan 10,843 10,606 2.24 5.91 6.00 83.2 83.4 (0.30) 1.39 2.54

EU 100.8 99.7 1.11 3.96 5.64 1.37 1.36 1.03 (0.01) 2.31

US 12,391 12,273 0.96 4.20 7.03 77.7 78.5 (1.01) (0.09) (1.73)

Exchange RateStock Market Index

Economics Research

Rupiah’s rise to help curb inflation

Highlights

Market review

Rupiah appreciated by almost 2% m-t-d, as the central bank allows strongercurrency to curb inflation.

Positive sentiments in domestic economy and resolution in Egypt political tensionhas partly improved confidence, with the JCI rising 3.24% from a week earlier to3,501

Global economic update

Rising inflationary pressure evidence across the globe. Countries respondedaccordingly

Japan’s economy contracted 1.1% annually in 4Q10 and lose its world second-biggest economy status to China

Domestic economic update

BI abolish 6 month SBI, offering only 9mo SBI to lengthen investment horizon. BI estimated fuel consumption rationing to add up to 0.7% to the headline

inflation Producers mull to raise selling price, it could upwardly push inflation pressures Fitch will review Indonesian credit rating in the end of 1Q11

EXHIBIT 1. WEEKLY CURRENCIES AND STOCK MARKETS REVIEW

Note: - Exchange rate is stated in local currency/US$, except in EU. US$ currency is using dollar index (DXY), higher index means stronger US$ dollar againts 6main major currency

- EU stock market is MSCI EUSource: Bloomberg

EXHIBIT 2. WEEKLY INTEREST RATE SUMMARY

Note: * SBI 9moSource: Bloomberg

EXHIBIT 3. WEEKLY COMMODITY PRICES SUMMARY

Source: CEIC, Bloomberg

22 February 2010

Weekly Economic Research





Real Effective Exchange Rate Jan11

(% deviation from base year end 2009=100)10.0 9.8 9.4

8.1 7.9

6.2 6.0

3.8 3.72.9 2.6

-3.6

-6

-4

-2

0

2

4

6

8

10

12

14

Russia

India

Brazil

Singapore

Malaysia

Thailand

Indonesia

Japan

Korea

Philippines

China

Hong Kong SAR

Net Foreign Buying

(Rp tn)

(60)

(50)

(40)

(30)

(20)

(10)

-

1020

30

40

50

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

Jan-11

Feb1W

Feb2W

Feb3W

SBI

Government Bond

Stock

Market review Rupiah continues to

appreciate to curb down

inflation

Positive sentiments drove JCI

rose 3.2% to reach 3,501

The rupiah appreciation continued last week, bringing the currency to Rp8,870/US$level stronger by almost 2% compared to end of Jan11. Besides the strong economic

fundamentals and solid trade surplus, the currency appreciation is intended by thecentral bank to curb imported inflation. On inflation-adjusted term, rupiahappreciation is still inline with its peer, which has been strengthening by 6% since endof 2009 (see exhibit 4). Overall, we believe room for appreciation remains open, due tocontinuing capital inflow, both for portfolio and direct investment. Last week, foreigninvestor ownership in government bond declined slightly by Rp0.1tn to Rp198.8tn(30.8% of total outstanding). The Indonesian stock market rebounded last week, erasing Feb loss, increasing 3.2%from a week earlier to 3,501 points. Foreign investors’ confidence on emergingeconomies was partly restored by the resolution in the Egypt crisis. Foreigners posteda net buy of Rp2.4tn last week. Positive regional sentiment was also seen in the

regional stock markets: Thailand (4.8%), Philippines (2.7%), Malaysia (1.5%), Singapore(0.3%). China (2.6%), and India (2.7%). Yet, rising political tension in Libya and Bahrainhas again clouded the sentiment early this week and has sent the oil price to its recordhigh. Today, the WTI oil price rose to US$92.7/barrel (increasing 7.5% since end of lastweek) and the brent price rose to US$106.9/barrel (up 4.3% ).

EXHIBIT 4. RUPIAH APPRECIATION REMAIN INLINE WITH ITS

PEER

Source: BIS

EXHIBIT 5. FOREIGNER INCREASED POSTED NET BUY IN STOCK

IN W3 FEB11

Source: CEIC

Global Economic Update Advance economies: Rising

inflation pressure and

slowing growth momentum

evidenced

Consumer inflation rose in Jan11 in advance economies. UK’s inflation rose to 4% inJan11 the highest since Nov08, triggered by higher energy prices. The US’s inflationincreased to 1.6% yoy in the same period, which was also dominated by food andenergy prices. However, increase in US core inflation to 1.0% yoy vs. 0.8% yoy inDec10 indicated rising confidence of a more sustained demand recovery. Yet, retailsales growth slowed to 0.3% yoy in Jan11 compared with 0.6% yoy in Dec10. Japan’seconomy shrank 1.1% on year in 4Q10, compared with 3.3% growth in 3Q10, whichmade its status as the world 2nd largest economy since 1968 overtaken by China.Japan’s nominal GDP was US$5,474tn, while China’s is US$ 5,879tnin 2010.

Accordingly, the Bank of Japan's Policy Board left the target rate for unsecuredovernight call money between zero and 0.1%.





-3

-2

-1

0

1

2

3

Jan

-98

Jan

-99

Jan

-00

Jan

-01

Jan

-02

Jan

-03

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

-09

Jan

-10

Inflation (%, YoY)Policy Rate (% p.a)

% YoY

-50

-40

-30

-20

-10

0

10

20

30

40

Dec-07

Mar-08 Ju

n-08Sep-08

Dec-08

Mar-09 Ju

n-09Sep-09

Dec-09

Mar-10 Ju

n-10Sep-10

Dec-10

GDP Growth

Domestic Demand

Exports

Imports

Emerging economies:

Inflation fighting continues

China’s inflation rose to 4.9% yoy in Jan11 from 4.6% yoy in Dec10, under the new CPIweighting that puts more mass on housing component and less for the food. India’swholesale price inflation remained high but slightly eased to 8.2% yoy vs. 8.4% inDec10. Food related prices were still driving inflation in the country. Rising inflationarypressures encouraged the People’s Bank of China (PBOC) to increase the reserverequirement ratio of banks by 50 basis points, effective 24 February and State Bank of Vietnam raised its refinancing rate to 11.0%. Meanwhile Bank of Korea unexpectedlyleft the Base Rate at 2.75% on February 11th meeting even though inflation in January2011 was 4.1% yoy, higher than the upper ceiling 2011 inflation target of 4%.Previously, Korea has raised policy rate three times since 2010 (in July, November, andJanuary).

EXHIBIT 6. JAPAN’S CONSUMPTION AND TRADE GROWTH

DETERIORATE

Source: CEIC

EXHIBIT 7. JAPAN’S LIQUIDITY TRAP SINCE 1990’S

Source: CEIC

EXHIBIT 8. SOME COUNTRIES HAS STARTED THE RATE HIKE CYCLE, TO KEEP NEGATIVE REAL INTEREST RATE NARROW

Country Key Targeted Rate Current Rate Last Change Amount of Change Real Rate (+) Next Meeting

China Lending Rate 6.06% 2/9/2011 0.25% 1.16% n/aHong Kong Base Rate 0.50% 12/16/2008 -1.00% -2.60% n/a

India Reverse Repo Rate 5.50% 1/25/2011 0.25% -3.97% 3/17/2011India Repo Rate 6.50% 1/25/2011 0.25% -2.97% 3/17/2011

Indonesia Reference Rate 6.75% 2/7/2011 0.25% -0.27% 3/4/2011

Malaysia Overnight Rate 2.75% 7/8/2010 0.25% 0.55% 3/11/2011Philippine Overnight Rate 4.00% 7/9/2009 -0.25% 0.50% 3/24/2011S. Korea Repurchase Rate 2.75% 1/12/2011 0.25% -1.35% 3/9/2011Sri Lanka Repurchase Rate 7.00% 1/11/2011 -0.25% 0.20% 3/7/2011

Taiwan Rediscount Rate 1.63% 12/30/2010 0.13% 0.52% 3/25/2011Thailand Repo Rate 2.25% 1/12/2011 0.25% -0.78% 3/9/2011

Vietnam Base Rate 9.00% 11/8/2010 1.00% -3.17% n/a

Source: Bloomberg





Domestic Economic Update Bank Indonesia abolish 6

month SBI, foreign funds

may shift to government bonds

BI forecast additional

inflation of 0.7% resulting

from subsidized fuel capping

policy

The statistics agency expects

inflation in Feb11 to be lower than the previous month

Producers mulls to raise

prices, pushing inflation

higher

Fitch will review Indonesian

credit rating in the end of

1Q11

Following the abolishment of 1 and 3 month SBI in July and November 2010, Bank Indonesia (BI) announced that it no longer offers 6 month SBI on the Wednesday

auction (02/09). This means that the only SBIs available is the 9 month tenor. The policywas made to extend maturity profile, and thus deepen the financial market. Theabsence of short term SBIs most likely would direct foreign funds to the governmentbonds. Foreign ownership on the government bonds has increased Rp1.5tn since theabolishment to Rp198tn (as of Feb 18). According to BI’s estimate subsidized fuel consumption rationing will add inflation upto 0.7%. Assuming simultaneous policy implementation in Java and Bali starting Apriland non-subsidized fuel price of Rp8,000/liter. Price pressures will get worse when it isapplied in other regions and non-subsidized fuels price increases further. Additionalinflation may also be resulted from the secondary effects. Currently, the government is

waiting for joint academic study to analyze the socio-economic effect of such policy. The above estimated figure is in line with ours. Initially, we expect the first-round

impact would add up around 0.6ppt to inflation should the policy be implementedfully on the national level and based on Rp6,750/liter of the non-subsidized fuel price.However, with recent increase in the non-subsidized fuel price to Rp8,000/liter (up77% from the current subsidized price) and assuming around 30% of subsidized-fuel-consumers will be forced to pay at the normal price, the impact will increase to around1% to the headline inflation. However, since the plan would take into affect initially inJava and Bali the impact will be lesser of around 0.6ppt. The Statistics Agency noted that prices of commodities such as rice, chilis have started

to move downward, and as such inflation in February is expected to be lower than inJanuary. However, another potential inflation booster came from the rises in the pricesof cooking oil, soybean-related food. The weights of those items are lower than ricethough, and at the current price rate they will not significantly raise inflation. Theagency estimated inflation to hover around 0.5% mom in Feb11 that would bringinflation around 7.2% yoy. Historically, inflation averaged 0.45% mom in Feb11. Additional inflation pressure may come from rising global commodity prices andgovernment regulation on import duties (5% - 20%), which would increase the costsof production –thus to force them to raise selling prices. After instant noodleproducers, some food stuff, medicine, toiletries, cosmetics and cement producingcompanies have been reported to mull to increase their selling prices from 2% to 23%.

In addition PLN insisted to remove industrial electricity tariff capping despite theparliament’s suggestion to maintain the policy, adding more reasons for producers topass through production costs to consumers. Fitch Ratings planned to review Indonesian sovereign credit rating in the end of 1Q11.The last review by Fitch on January 2010 ended up with Indonesian rating upgradedfrom BB to BB+ with stable outlook. If Indonesia receives another upgrade, then Fitchwill be the second agency after Japan Credit Rating to place investment grade againafter the crisis in 1998. Improvements in domestic economy, and Moody’s recentlyupgrade Indonesia to Ba1, could be beneficial for Indonesia, as we found investmentgrade will help lower risk premium required by investors. Thus, investment growth islikely to accelerate.





2 005 2 006 2 007 2 008 2 009 20 10(e) 20 11 (f) 20 12 (f)

National Acco unt

Real GDP (% yoy) 5.7 5.5 6.3 6.1 4.6 6.0 6.3 6.6 Domestic Demand (% yoy) 5.0 4.5 6.0 7.4 5.5 5.3 7.8 8.2

Real Con sumption : Private ( % yo y) 4. 0 3.2 5.0 5.3 4.9 4.9 5.3 5.3

Real Gross Fixed Capital Formation (% yoy) 10.8 2.9 9.2 11.7 3.3 9.1 13.6 14.4

GDP (US$ bn) - nominal 286 364 432 512 540 717 856 1,007

GDP per capita (US$) - nominal 1,298 1,641 1,922 2,242 2,339 3,023 3,561 4,126

External Sector

Ex po rts (%y oy, US$) - Merch and ise 19. 7 17.3 13.1 22.0 (15.0) 30.2 15.1 17.5

Im ports (%yoy ,U S$) - Me rc han di se 24. 0 6.7 21.8 40.7 (25.0) 37.9 22.3 22.6

Trade Balance (US$ bn) 17.5 29.7 32.8 22.9 35.2 39.3 36.9 36.2

Current Account (% of GDP) 0.3 2.6 0.4 (0.1) 1.9 2.0 0.9 0.1

Current Account (US$ bn) 0.3 10.9 10.5 0.1 10.7 14.2 7.4 1.5 External Debt (% of GDP) 47.1 36.4 32.7 30.3 32.0 27.1 25.0 23.3

International Reserves (US$ bn) 34. 7 42.6 56.0 51.6 66.1 95.0 115.8 131.2

Import cover (months) 5.3 5.6 7.1 4.9 8.5 9.1 9.3 8.6

Rp/US$ (period average) 9,751 9,167 9,139 9,694 10,399 9,077 8,819 8,697

Rp/US$ (year end) 9,830 9,020 9,400 11,120 9,400 8,927 8,762 8,663

Other

BI rate (% period average) 9.2 11.9 8.6 8.7 7.1 6.5 6.9 7.0

BI rate (% year end) 12.8 9.8 8.0 9.3 6.5 6.5 7.0 7.0

He ad lin e Inf la tio n ( % yo y, ye ar en d) 17. 1 6.6 6.6 11.1 2.8 6.3 6.6 6.5

Headline Inflation (% yoy, period average) 10.4 13.3 6.0 9.8 4.9 5.1 6.7 6.5

Fiscal Balance (% of GDP) (0.9) (1.1) (1.3) (0.1) (1.6) (1.4) (1.5) (1.5)

S&P's Rating - FCY B+ BB- BB- BB- BB- BB BB+ BBB-

S&P's Rating - LCY BB BB+ BB+ BB+ BB+ BB+ BBB- BBB

MACRO ECONOMIC INDICATORS AND FORECAST

DISCLAIMER: This report is issued by PT. Mandiri Sekuritas, a member of the Indonesia Stock Exchanges (IDX). Although the contents of this documentmay represent the opinion of PT. Mandiri Sekuritas, deriving its judgement from materials and sources believed to be reliable, PT. Mandiri Sekuritas orany other company in the Mandiri Group cannot guarantee its accuracy and completeness. PT. Mandiri Sekuritas or any other company in the MandiriGroup may be involved in transactions contrary to any opinion herein to make markets, or have positions in the securities recommended herein. PT.Mandiri Sekuritas or any other company in the Mandiri Group may seek or will seek investment banking or other business relationships with thecompanies in this report. For further information please contact our number 62-21-5263445 or fax 62-21-5275711. ANALYSTS CERTIFICATION: Each contributor to this report hereby certifies that all the views expressed accurately reflect his or her views about thecompanies, securities and all pertinent variables. It is also certified that the views and recommendations contained in this report are not and will not beinfluenced by any part or all of his or her compensation.

Destry Damayanti

Chief Economist

+6221 5296 9571

[email protected]

Aldian Taloputra

Economist

+6221 5296 9572

[email protected]

Source: CEIC, Mandiri Sekuritas estimates

Wisnu Trihatmojo

Research Assistant

+6221 5296 9544

[email protected]

mandiri - rupiah’s rise to help curb inflation 21feb11

Documents