Monitoring
the latest economic conditions in Indonesia, the impact of COVID-19 in
particular, Bank Indonesia Governor, Perry Warjiyo, discussed 3 (three) new
developments on Wednesday (22/4) along with the policy measures instituted by
Bank Indonesia as follows:
1.
Net portfolio investment inflows to Indonesia
recorded Rp1.57 trillion.
Based on non-resident daily transaction data from
13-20 April 2020, foreign inflows to Government securities (SBN) was recorded
at Rp4.37 trillion and outflows from stock market was recorded at Rp2.8
trillion, totaling net inflow of Rp1.57 trillion. It indicates that confidence
in Indonesia, primarily investment in fixed income portfolio, is gradually
increasing as boosted by:
a. The attractive yield offered
by the SBN, as measured by
several indicators, such as yield spread of 7.1% or 713 bps between 10-year
Indonesian Government’s bonds and 10-year US treasury, and real yield of 4.6%
which is higher than India, Mexico, and other Asian countries.
b. A risk premium indicator, financial market volatility index (VIX)
stood at the level of 18.8 before COVID-19, while during the peak at around the
second and third weeks of March 2020 stood at the level of 83.2; and the latest
data shows that VIX stood at 43.8 which means global financial market panic is
gradually subsiding.
Moving forward, high interest rate differentials,
gradually improving risk premium, and policy measures instituted by Bank
Indonesia, the government, and the relevant authority will increase
attractiveness of portfolio investment in Indonesia and support Rupiah exchange
rate stability. Historically, from
2011-2019 in Indonesia, outflow is relatively small within a short period,
followed by considerable inflow within a long period. Data shows average
outflow is Rp29.2 trillion within a duration of 3-4 months, followed by inflow
of Rp229.1 trillion within a duration of 21 months.
2.
Rupiah exchange rate stable and will appreciate
to a level of Rp15,000 at the end of the year.
Rupiah exchange rate movement is affected by
the following 2 factors:
a.
Fundamental factor will affect the direction of Rupiah exchange
rate movement.
Fundamentally, Rupiah exchange rate remains undervalued with low and controlled inflation at 3±1%,
current deficit in Q1 will be lower than 1.5% of the GDP and overall in 2020
will be lower than 2% of the GDP, and policy measures instituted by Bank
Indonesia, the government, and the relevant authority, including fiscal and
monetary stimulus strengthen confidence in Indonesia.
b. Technical factors will affect daily movement of Rupiah exchange
rate.
c. The technical factors, among others are (global factors) the
decreasing oil price, conflict between Russia and Saudi Arabia, and
geopolitical issues, and (domestic factor) COVID-19 response measures including
enforcement of large-scale social distancing (PSBB) in Indonesia.
In addition, share price index in Indonesia is
not always moving following the global share price index. It indicates
that investors start to pay positive attention to Indonesia.
3.
Inflation controlled and low.
The Price Monitoring Survey conducted by Bank
Indonesia and 46 Bank Indonesia Representative Offices as of the third week of
April 2020 shows that prices in the market are controlled and low. Inflation in
April 2020 is estimated to stand at 0.22% (mtm) or 2.82% (yoy). Commodities
contributing to the inflation are shallots, gold jewelries, and white sugar.
Meanwhile, commodities contributing to deflation are red chilies, chicken meat,
and eggs.
Inflation during Ramadhan and Eid al-Fitr is
estimated lower than historical pattern due to these factors:
a.
April and May are harvest months, making supply of basic
commodities sufficient for the public needs.
b. Demands will also be lower due to COVID-19 pandemic, which results
in lesser human activities due to mobility restrictions, PSBB, etc.
c.
Expected inflation is controlled.
d.
The policy measures taken to control inflation.
Bank Indonesia is confident that by the end of
2020, inflation will remain controlled at 3±1%.
Standard and
Poor’s (S&P) revised outlook of Indonesia to negative on 17 April 2020. It
reflects S&P’s expectation that ahead Indonesia will face external and
fiscal risk increase due to the increasing offshore liabilities and debts of
the Government to finance COVID-19 pandemic management. In relation thereto,
Bank Indonesia observes that Indonesia’s external debt condition remains safe,
controlled, and productive. Indonesia’s external debt as of the end of February
2020 amounted to USD407.5 billion, consisting of public external debts
(government and central bank) of USD203.3 billion and private external debts
(including SOE) of USD204.2 billion. Indonesia’s external debt is managed with
the principle of prudence. For private sector, Bank Indonesia regulation
obliges prudential principle in managing external debt, such as hedging and
minimum rating. Meanwhile, the Government’s plan to issue SBN for
economic recovery and fiscal deficit financing due to COVID-19 pandemic will
increase the quantity of issued SBN. However, it must be understood this year’s
SBN outflow decreases foreign ownership from around 40% to 32%. On the other
hand, SBN ownership by Bank Indonesia increases.
Bank
Indonesia will continue to strengthen coordination with the Government and
Indonesian Financial Services Authority (OJK) to carefully monitor the dynamics
of COVID-19 transmission and the economic impact on Indonesia over time,
including the coordinated policy measures required to maintain macroeconomic
and financial system stability, as well as solid and resilient economic growth.
