Singapore and Indonesia Trade Performance Below Expectations

Bank Indonesia (BI) kept its benchmark interest rate unchanged at 4.25% in January, which was in line with market expectations. BI had conducted as much as eight interest rate cuts over the past two years, with the last cut in August 2017. Both the deposit facility and lending facility was also kept unchanged at 3.5% and 5.0% respectively, while Bank Indonesia stated that it may relax the reserve requirement daily average level for commercial banks. The actions by Bank Indonesia reflects their effort to continue provide stimulus to the economy without fanning a stronger inflationary pressure. Furthermore, BI cautioned that “several risks still remain vigilance, both external risks which includes monetary policy normalisation in several advanced economies, geopolitical tensions and the rising global oil price, as well as the domestic risks, such as ongoing corporate consolidation, sluggish bank intermediation and inflation risk.”

We believe the increase in global oil prices, possibly adding a second-round effect to the country’s domestic inflation via higher transportation cost, may lead to some pressure on inflationary expectations. If increase in oil prices continue and higher cost push inflation higher, the room for further monetary easing by BI may be limited. BI also acknowleged that there is limited room for further rate cuts. We believe this also reflected the possible rupiah pressures from monetary policy normalisation, growing expectations of an FFR hike and the US tax reform plan. Having said that, we also believe that BI will likely maintain an accommodative monetary policy going forward, especially when Indonesia’s real GDP growth remains around 5% level, with the 3Q17 economic growth at 5.1% yoy. BI is projecting the country’s real GDP growth to improve from 5.05% estimated for 2017 to a range of between 5.1-5.5% in 2018.

Similarly, Indonesia exports number slowed from 13.2% in November to 6.9% yoy in December 2017, lower than market expectations of 13.85%. Despite the fall in exports performance, imports continue with its double digit growth of 17.83% yoy during the month, leading to Indonesia’s first trade deficit in five months at US$270m. However, BI noted that the country’s balance of payments (BOP) is expected to record a surplus in 4Q17, while the current account deficit remains under control.

Seperately, Singapore non-oil domestic exports (NODX) slowed from 9.5% yoy in November to 3.1% in December 2017, sharply lower than market expectations at 8.6% yoy, due to weaker shipments of electronics, which declined by 5.3% yoy, due to lower demand for semiconductors.

Source: Affin Hwang Research - 19 Jan 2018