Lower inflation, bigger trade surplus and narrowing current account deficit (CAD) provide BI room to have a rate cut but we believe maintaining the rate unchanged is wise until the demand side is able to respond it better.
Jul-20 trade surplus was recorded as the second highest surplus at USD3.26 bn from the highest surplus at USD3.57 bn in Aug-11.
Dip in Indonesia economy has just been registered in 2Q20 at its sharpest pace since 1999 where in 1Q99 it grew by -6.13% YoY right after Asian Financial Crisis and political turmoil in 1998.
The low era of inflation is associated with current unusual situation where households tend to save more in order to avoid uncertainty in the near future due to the pandemic.
Bank Indonesia (BI) today delivered its fourth rate cut on benchmark interest rate by 25bps to 4.0%, which is the lowest in two years andaligned with our and consensus expectations.
Better than our and consensus estimates, trade performance in Jun-20 displayed big improvement where exports showed up with the first expansion in last 4 months.
The JCI dropped by 22.1% to 4,905 in 1H20. We looked at various stocks in JCI that have contributed the most to the decline and have seen selling pressure.
Statistics Indonesia (BPS) recorded low inflation in Jun-20. The biggest contributor of inflation came from food, beverage and tobacco basket. On inflation components, chicken contributed the most as it brought 0.14% to total inflation.
BI believes that the economic growth will go up eventually. Thus, in 2021, BI predicts the recovery phase is near and the growth in 2021 will be around 5-6%.
Looking at the smaller trade deficit compared to 2018 and 2019 and the relaxation of PSBB, the trade performance will be getting better when other countries as our key trade peers recover from Covid-19.
We expect JCI to encounter another selling pressure in 3Q20, as the real extent of economic and corporate earnings impacts of Covid-19 become manifest with the release of 2Q20 earnings and GDP figure starting in July 2020.
Inflation in May-20 showed an anomaly compared to prior Ramadan months where the households spending and the inflation itself used to be higher.
In a bid to revive the stuttering economy, Indonesian officials have planned to economic reopening in stages starting from June with some health protocols remaining in place.
As Covid-19 pandemic hits on every sector, it brought significant impact to financial account it swung to a deficit of USD2.93 bn due to the capital flight amid pandemic compared to surplus of USD9.86 bn in 1Q19.
Trade performance in 2018 and 2019 were way worse than Jan-Apr 2020 performance. This could be a signal of 2020 weaker global demand of Indonesia’s export, supported by the lower inflation of OECD member states with lower trend ahead.
Continuing the global economic downturn in 2019, Covid-19 hit us all where Indonesia’s economic growth plunged sharply in 1Q20.
Low inflation in Apr-20 is unusual since it historically used to be higher compared to March.
Our economist now expects a U-recovery for the Indonesia economy as our baseline scenario instead of V-recovery. With cases of Covid-19 are on the rise we believe it would peak in June and be brought under control by third quarter of this year.
Eventually, Indonesia has launched the foremost stimulus package on target compared to the previous stimulus packages.
Talking about basic monetary policy, it emphasizes more on demand side as it may affect the liquidity in society. Covid-19 does not only bring impact on demand side, but supply side as well.
Covid-19 is not only affected the supply side but also the demand side. In that case, a global economic contraction could become inevitable.
Monthly inflation in February is always lesser than January inflation in last 10 years.
Due to the COVID-19 outbreak, Bank Indonesia (BI) decided to cut its BI 7-Day Reverse Repo Rate (BI-7DRRR).
According to Indonesia Statistic Office (BPS), the country had always recorded trade deficit in every January within the last three years.