Bank Indonesia Kept Its Policy Rate at 6% in Latest MPC Meeting

Bank Indonesia (BI) kept its 7-day reserve repo rate unchanged at 6% at its latest Monetary Policy Committee (MPC) meeting in February, as expected. BI has left the benchmark rate unchanged since its last 25bps rate hike in November 2018. The lending and deposit facility rates were also left unchanged at 6.75% and 5.25%, respectively. We believe that BI will likely stand pat with its current policy rate in the near term as previous concern for BI such as the weakening Rupiah has slowly improved. So far in 2019, the Rupiah has appreciated against the US Dollar by around 2.5%. Additionally, with the US Fed likely to also pause in its rate hikes in 2019, we believe this may further support the Rupiah against the US Dollar. BI noted that Indonesia’s balance of payments had also increased to US$5.4bn in 4Q18 (US$0.97bn in 4Q17) which will support external sector resilience. The country’s inflation rate has remained subdued, moderating to its lowest rate since August 2016 of 2.8% yoy in January 2019 (3.1% in December 2018).

Separately, Thailand’s GDP growth expanded by 3.7% yoy in 4Q18, compared to 3.2% in 3Q18, following two consecutive quarters of slowing down. The faster growth registered during the quarter was led by private investment, which surged to a four-year high of 5.5% yoy (3.8% in 3Q18), driven by larger investment in construction and machinery. In addition, private consumption also rose to a near six-year high of 5.3% yoy (5.2% in 3Q18), due to higher spending on consumer goods and tourism-related services led by the strong growth in international tourist arrivals of 13.1% yoy. In 2018, Thailand’s GDP expanded by 4.1% yoy in 2018 (4% in 2017), its fastest annual pace since 2012. However, going into 2019, the National Economic and Social Development Board (NESDB) highlighted that there will be more downside risks arising from global and financial volatilities such as global economic slowdown as well as the potential impact of political sentiment on overall economic sentiment as well as investors’ and tourists’ confidence around the election periods and amid new government policy direction. NESDB expects GDP growth in 2019 to remain supported by private consumption and investment, higher public investment and an expected recovery of the tourism sector. As a result, it projects the Thai economy to expand in a range of 3.5-4.5% in 2019.

Singapore’s Finance Minister presented the country’s 2019 Budget, where the country is expected to register a budget deficit of S$3.5bn for FY19 (0.7% of GDP) following a revised surplus of S$2.1bn in FY18 (0.4% of GDP). The Finance Minister guided that the budget deficit will stem from the long-term needs like S$6.1bn for the Merdeka Generation Package and S$5.1bn for the Long-Term Care Support Fund. As the Ministry of Trade and Industry (MTI) expects slower growth in 2019, settling slightly below the mid-point range of its forecast range of 1.5 to 3.5% (3.2% in 2018), due to uncertainties and downside risks to the global economic front, we believe that the expansionary Budget 2019 and the measures outlined will support domestic demand and in turn support Singapore’s economic growth this year.

Source: Affin Hwang Research - 22 Feb 2019