Indonesia and Philippines kept rates unchanged

• Bank Indonesia (BI) maintained its policy rate unchanged at 3.75% in its December monetary policy meeting
• Bangko Sentral ng Pilipinas (BSP) also decided to keep its key policy rate at a record low of 2%
• Singapore’s NODX declined for the second consecutive month by 4.9% yoy in November from -3.1% in October.

BI and BSP to leave rates on hold for now while assessing domestic economy Bank Indonesia (BI), in its December monetary policy meeting, kept its key policy rate (7-day Reverse Repo Rate) unchanged at 3.75% following the 25bps rate cut in the previous meeting last month. Since early 2020, BI had lowered its key policy rate by a total of 125bps in order to support the economy from the negative impact of the pandemic. BI guided that its decision was in line with expectations of low inflation and steady external stability and to support the domestic economy. Going into 2021, we believe that further rate cuts will largely depend on the country’s economic performance especially as Covid-19 cases remain elevated and movement restrictions in several localities until December 21st. As headline inflation remains low at 1.6% yoy in November (1.4% in October), below the central bank’s inflation target of 2-4%, we expect that this will provide room for BI to cut policy rates further if necessary. However, we believe that possible weaker Rupiah will continue to be a concern for BI, especially if US$ were to gain strength against regional currencies in 2021. Year-to-date, the Rupiah has depreciated by about 1.6% against the US Dollar.

In the Philippines, Bangko Sentral ng Pilipinas (BSP) decided to maintain its key policy rate at a record low of 2%, after lowering it by 25bps in its previous monetary policy meeting in November. In 2020, BSP has lowered the policy rate by a cumulative 200bps. Moving forward, we expect BSP to leave keep rates unchanged for now and monitor the country’s pace of recovery. However, there are still headwinds for the country especially in terms of the development of the pandemic as new Covid-19 cases remain elevated. Furthermore, several provinces and cities including Metro Manila are still under General Community Quarantine (GCQ) until December 31st which could weigh on 4Q GDP growth (-11.5% in 3Q20). Besides that, we believe that there could also be more emphasis placed on the implementation of more fiscal policy measures which have currently amounted to only about 3.4% of GDP.

In Singapore, the non-oil domestic exports (NODX) fell for the second consecutive month by 4.9% yoy in November from -3.1% in October, weighed down by both nonelectronic and electronic exports which fell by 5.2% yoy and 3.8% yoy, respectively. Given the ongoing uncertainties in the external front, we believe that Singapore’s NODX performance could continue to face headwinds in the coming months. With rising number of cases in several of Singapore’s top markets such as US, Japan and the EU, this could negatively impact external demand for Singapore’s NODX especially if containment measures are tightened further. Nevertheless, once vaccines are widely available and accessible, we expect this to bode well for NODX performance going into 2021, supported also by China’s economic recovery.

Source: Affin Hwang Research - 18 Dec 2020