• BI guided that its decision to leave policy interest rates at current level was to maintain the stability of the Rupiah against the backdrop of projected low inflation. This was despite the re-imposition of a partial lockdown in Jakarta.
• In Singapore, non-oil domestic exports (NODX) expanded for the third consecutive month by 7.7% yoy in August from 5.9% yoy in July
• Asian Development Bank projects economic output of developing Asia to contract by 0.7% in 2020 compared to previous forecast of +0.1%

ADB does not expect growth to return to pre-pandemic trajectory too soon

Bank Indonesia (BI) kept its policy interest rate unchanged at 4% for the second consecutive meeting in September. To date, BI has lowered its key policy rate by a total of 100bps. BI guided that its decision to leave policy rates at its current level was to maintain the stability of the Rupiah against the backdrop of projected low inflation. Besides that, BI emphasised that it will continue to monitor the global economy and financial markets as well as the development of Covid-19 and its impact on the domestic economy. Although BI noted that the domestic economy is slowing improving, the recent re-imposition of a partial lockdown in Jakarta by the government since 14 September could potentially weaken the pace of the country’s economic recovery. We believe that as headline inflation in Indonesia remains low at 1.3% in August (1.5% in July), BI may have room to lower its policy rate further if necessary. However, BI will likely monitor the performance of the Rupiah before making additional cuts as it remains weak compared to the US Dollar. Year-to-date, the Rupiah has depreciated by 6.2% against the US Dollar. In the same week, Indonesia’s exports growth contracted for the second straight month albeit at a slower pace of 8.4% yoy in August from -10.1% yoy in July, meanwhile imports growth fell by 24.2% yoy in August from -32.6% in July. As a result, the trade surplus narrowed to US$2.3bn from US$3.2bn in July.

In Singapore, non-oil domestic exports (NODX) expanded for the third consecutive month by 7.7% yoy in August from 5.9% in July, led by higher exports of both electronics and non-electronic products. Furthermore, NODX to most of Singapore’s top 10 markets expanded in August, with the exception of Thailand, Malaysia, Hong Kong and Indonesia. Going forward, sustained rise in global semiconductor sales as well as the recovery and resumption of economic activity of major trading partners will likely continue to support NODX performance. However, we believe there are still downside risks especially if another wave of Covid-19 occurs which could weigh on external demand and also lead to disruption of supply chains.

In the Asian Development Outlook (ADO) 2020 Update, economic output of developing Asia is projected to contract by 0.7% in 2020 compared to its previous forecast of +0.1% (+5.1% in 2019) due to the negative impact of Covid-19 through strict containment measures and decline in investment and consumer spending. Going into 2021, ADB anticipates the region to rebound to 6.8% which is 0.6 percentage points higher from its previous projection of 6.2% but growth is not anticipated to return to its pre-pandemic trajectory too soon.

Source: Affin Hwang Research - 17 Sept 2020