Indonesia’s Nov export rose by 21.34% yoy, strongest since Sep 2011

Bank Indonesia (BI) maintained its 7-day reverse repo rate at 4.75% in the final Board of Governors meeting for 2016. Deposit facility rate and lending facility rate were also kept unchanged at 4% and 5.5% respectively. This was the second consecutive meeting that BI has decided to keep its policy rates unchanged at current level, after having lowered its key policy rate six times this year. We believe any further cut in policy rates by BI to stimulate as well as optimizing domestic economy recovery and maintaining macroeconomic stability will be put on hold following the recent increase in US federal funds rate (FFR) by the Federal Reserve.

Recent global developments (partly due to uncertainty arising from risks of Trump’s trade policy and financial market volatility) had led to some depreciation of the regional currencies, including Indonesian rupiah. On the other hand, OPEC’s decision to lower crude oil production has boosted oil prices. The combination of these two factors, weak Rupiah and increase in oil prices, may likely translate into higher inflationary pressure in 2017, through volatile food and administered price adjustments. In the latest MPC statement, BI expects inflation to range between 3.0-3.2% for 2016, before rising further within the target corridor of 3-5% in 2017, implying lesser flexibility for the central bank to cut its policy rate further.

On the external front, Indonesia’s exports (in US$ terms) rose significantly from 5.1% yoy in October to 21.3% in November, the strongest growth since September 2011, as well as better than market expectations of a 12.5% increase. Export volume growth improved sharply from 8.9% yoy to 11.1% over the same period, with overall export growth supported by recovery in commodity prices such as palm oil and coal. Stronger palm oil prices led to stronger export of agriculture goods (25.14% vs 15.86% in September). Exports of manufactured goods growth also increased to 26.0% yoy (5.8% in October), driven by some improvement in global trade activity.

Separately, Philippines’ export growth slowed to 3.7% yoy in October (5.1% in September), significantly below market expectation of an acceleration to 7.9%. This was despite an improvement in the exports of electronic products (4.7% yoy vs 4.2% in September), which accounts for over half of total exports, as exports of other manufactured products (such as machinery & transport equipment, chemicals) showed a weaker yoy growth compared to the prior month.

Source: Affin Hwang Research - 16 Dec 2016