ECONOMIC REPORT

Economist : H e r u I r v a n s y a h
heru.irvansyah@bnisecurities.co.id

INDONESIA
March 11, 2016
Macro Insight

Recent Bank Indonesias Relaxing Monetary Policies

and its impact into Domestic Financial Market
BI is a little bit
aggressive on its
monetary policy by
reducing its anchor rate
by 50 bps from 7.5% to
7.0%

It is very interesting that central bank, Bank Indonesia (BI), in recent

couple of months relaxing its monetary policy a little bit aggressive by reducing its anchor interest rate by 50 basis points from 7.50% to 7.0% on its Government Board Meeting (RDGBI) in January and February. The last meeting
result in February shows that BI was more confidence to continue its dovish
view by decreasing again its anchor rate from 7.25% to 7.0% and made its deposit and lending facility rates were also reduced to become 5% and 7.5% respectively, another decision made in the last RDGBI was to decrease banks
minimum reserved requirement (Giro Wajib Minimum) by 100 basis points
from 7.5% to 6.5% that will make additional liquidity in economic system
around IDR 165 trillion. It hopefully can increase credit level of banks in domestic market gradually for next some months and provide multiplier effect
for domestic economy. Therefore, we believe that BIs policy in reducing its
key interest rate could help to boost economic growth in this year. Meanwhile,
governments fiscal policy is expected to strengthen the implementation of
economic policy which it will business and real sector.

BIs view is more

confidence about the
prospect of domestic
economy

We can see that the BIs view is more confidence about the prospect
of domestic economy in recent three months compared to previous months
before. It is reflecting BIs next move for further key interest rate easing as
inflation is still in BIs inflation target of 3% - 5% yoy and more stable Rupiah
(IDR) currency against US dollar (USD). Some factors can be notified as the
main reasons for BI in relaxing its monetary policy and we can divide it from
two sides, domestic side and global one. From domestic side, the last report of
inflation showed that inflation was relatively low. Inflation in 2015 was only
3.35% (yoy) and inflation in January 2016 was relatively moderate at 0.51%
(mom). On the other side, the report of Balance of Payment for 4Q2015 was
showing a surplus around USD 5.1 billion compared to previous quarter
(3Q2015) that took deficit around USD 4.6 billion, the exchange rate of IDR
tends to strengthen at the level around IDR 13,000 per USD until the end of
this month while it had ever reached higher level of around IDR 14,700 per
USD at the end of September in last year. Other good news coming from Indonesia Statistic Agency (Badan Pusat Statistik) report that was showing a better GDP growth of 5.04% in 4Q2015 compared to previous two quarters in
last year which were always below 5%. Purchasing power and domestic demand were weak in last year and impacted to slower economic growth even in
Ramadhan Fest season which is usually showing a relatively higher economic
growth period.

PT BNI Securities - Research

Monthly Economic Report

There is a big
From global side we knows that The Chairwomen of The Fed, Ms.Yellen,
probability if The Fed
and other members also see their dovish perspective in the step of the normalimay not increase its FFR zation of monetary policy which means there is a big probability if the Fed may
aggressively
not increase its Federal Fund Rate (FFR) aggressively. It will probably raise its
FFR less than 75 basis points in this year than market expectation in a month
before for FFR increase as much as 75-100 basis points until the end of this
year. Other stories coming from Euro Zone and Japan which those countries
tend to be more relaxing their monetary policies, these policies are expressed
from their anchor rates which are already in negative territories at -0.3% and 0.1% consecutively while China is providing more liquidity for domestic consumers to keep a growing momentum, therefore, there are relatively more liquidity from Japan and Euro Zone which have been flowing to emerging market since beginning of this year.
To anticipate this momentum, BI has been relaxing its monetary policy
To anticipate this
momentum, BI has been by reducing its anchor rate about 50 bps and other monetary instruments as
relaxing its monetary
well. And what is the impact of this relaxing monetary policy so far? We have
policy
found that from the first time when BI reduced its anchor rate in 14 January
2016 there was no significant down-movement in deposit and lending rate, it
decreased only 13.6 bps for deposit rate and 11.3 bps until the end of this week
for lending rate in average. Some major banks such as BNI, BRI, Mandiri and
BCA (Big Four) have decreased their rates significantly, but for smaller banks
they still need times to follow ways due to some risk that cannot be avoided by
those small banks. On the other side, Jakarta Composite Index (JCI) has showed
an increasing 220 points index from 14 January 2016 until the last weekend of
February 2016. Furthermore, IDR exchange rate was strengthening by IDR 505
from IDR 13,875 to 13,370 per USD in the same period.
Figure 1. BI Rate and JCI

Figure 2. BI Rate and JCI

Figure 1. BI Rate and Deposit Rate

Figure 2. BI Rate and Lending Rate

15.000

7.400

7.30
Lending
Rate, 14.532

14.500

7.20
Average
Line, 14.508

7.200
Average
Line, 7.020
7.000

BI Rate, 7.00

7.10

13.500

7.00
BI Rate, 7.00

13.000

6.800
14-Jan-16

14.000

Deposit rate
IDR, 7.008

28-Jan-16

11-Feb-16

Source : BNIS Calculation and Bloomberg

PT BNI Securities - Research Division

25-Feb-16

14-Jan-16

6.90
28-Jan-16

11-Feb-16

25-Feb-16

Source : BNIS Calculation and Bloomberg

Monthly Economic Report

The relaxing monetary

policy has been working
effectively on Deposit
Rate....JCI and IDR Rate

By using a simple average line analytical tool, we have a more clear

impression that the relaxing monetary policy has been working effectively on
Deposit Rate while it has already decreased around 1.2 basis point from its
average rate at 7.02% to 7.008% from 14 January 2016 to the end of last week
in February 2016, and with the same calculation we found that it has been
working out to boost up JCI and IDR rate as much as 98 index points and IDR
270 respectively from their average rate at the same time. Unfortunately, it
does not work yet to make Lending rate and Government Bond Yield 10Y to
reach better rate and better yield against their averages, the Lending rate at
the end of the last week in February 2016 was at 14.532% above its average at
14.508%, and Government Bond Yield 10Y at the same time was 8.227% above
its average line at 8.2% (see Figure 1-5).

Figure 3. BI Rate and JCI

Figure 4. BI Rate and Gov.Bond Yield 10Y

Figure 4. BI Rate and Gov.Bond Yield 10Y

Figure 3. BI Rate and JCI

5,000

7.40

4,800

JCI, 4,733
7.20

4,600

Average
Line, 4,635

4,400

BI Rate, 7.00

7.00

4,200

6.80

14-Jan-16

28-Jan-16

11-Feb-16

25-Feb-16

Source : BNIS Calculation and Bloomberg

8.800

7.30

7.20
8.400

Gov.Bond
10Y, 8.227

7.10
Average
Line, 8.200

8.000

7.00
BI Rate, 7.00
7.600
14-Jan-16

6.90
28-Jan-16

11-Feb-16

25-Feb-16

Source : BNIS Calculation and Bloomberg

Figure 5. BI Rate and IDR Exchange

Figure 5. BI Rate and IDR Exchange Rate

14,200

7.40

14,000
7.20
13,800

Average
Line, 13,640

13,600
7.00
BI Rate, 7.00

13,400

IDR, 13,370
13,200
14-Jan-16

6.80
28-Jan-16

11-Feb-16

25-Feb-16

From data available we can see that this relaxing

monetary policy in general has positive impact to
Deposit rate, JCI Index and IDR exchange rate, but it
does not work yet to make Lending rate and Government Bond Yield 10Y to be better in that short
period time. Therefore, it still needs more time to
make it to become effective. We have a positive
view that within three months ahead and we will
find out that all market prices (rates and index) may
move into better position as market expectation in
this year.

Source : BNIS Calculation and Bloomberg

PT BNI Securities - Research Division

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DISCLAIMER
This document is not intended to be an offer, or a satisfaction of an offer, to buy or sell relevant securities (i.e. securities mentioned herein or of the same issuer and options, warrants or rights to
or interest in any such securities). The information and opinions contained in this document have been compiled from or arrived at in good faith from sources believed to be reliable. No representation or warranty, expressed or implied, is made by BNI SECURITIES or any other member of the BNI Group, including any other member of the BNI Group from whom this document may be
received, as to the accuracy or completeness of the information contained herein. All opinions and estimates in this report constitute our judgment as of this date and are subject to change
without notice.

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PT BNI Securities - Research Division