• Bank Indonesia lowered its key policy rate by 25bps to 3.50% after keeping it unchanged at 3.75% for two consecutive meetings.
• Singapore 2021 Budget continues to be expansionary in order to support the recovery of households and businesses.
• Thailand’s GDP growth contracted for the fourth consecutive quarter by 4.2% yoy in 4Q20 (-6.4% in 3Q20) due to the sustained decline in net exports.

Singapore to register an overall deficit of S$11bn (2.2% of GDP) in FY2021

Bank Indonesia (BI), in its February monetary policy meeting, lowered its key policy rate (7-day Reverse Repo Rate) by 25bps to 3.50% after keeping it unchanged at 3.75% for two consecutive meetings. This was its first cut in 2021 following the total of 125bps rate cuts in 2020. BI guided that its decision was an effort to boost the momentum of the country’s economic recovery and was in line with its expectation of low inflation as well as to maintain the stability of the Rupiah. Despite the smaller decline in GDP growth of -2.2% yoy in 4Q20, from -3.5% in 3Q20 and the recent news of vaccines rollout, the policy rate cut was not a surprise, as any improvement in economic growth will continue to be hindered by ongoing containment measures in certain parts of the country. BI also lowered its GDP growth projection to 4.3%- 5.3% in 2021 from its previous estimate of 4.8%-5.8%. Going forward, we believe there is still room for BI to lower rates if necessary, as inflation remains low at 1.6% in January (1.7% in December), below BI’s inflation target of 2-4%. We are of the view that BI may likely cut rates by another 25bps in 1H21, but this will depend on the country’s economic performance as the rollout of vaccines continue.

In Singapore, the Finance Minister presented the country’s 2021 Budget, where it continues to be an expansionary one in order to support the recovery of households and businesses. With an expansionary Budget, the country is expected to register its second consecutive year of overall deficit of S$11bn (2.2% of GDP) in FY2021 albeit much smaller than the deficit of S$64.9bn (13.9% of GDP) in FY2020. Total government expenditure is projected to be S$102.3bn in FY2021 which is 8.8% higher than the expenditure of S$94.1bn in FY2020. In order to maintain public health, support workers and businesses and provide targeted support for sectors still negatively impacted by the pandemic, S$11bn will be allocated for the Covid-19 Resilience Package. Other measures were also introduced to further support households, labour market, healthcare workers, aviation sector and acceleration of electric vehicle adoption.

Separately, Thailand’s GDP growth in 4Q20 contracted for the fourth consecutive quarter by 4.2% yoy from -6.4% in 3Q20 where rebound in growth of domestic demand was offset by the sustained decline in net exports. For the full year, the country’s GDP growth declined by 6.1% yoy from a growth of 2.3% in 2019, its largest contraction since 1998. The National Economic and Social Development Council (NESDC) expects the economy to expand by 2.5%-3.5% in 2021 compared to its previous projection range of 3.5%-4.5% mainly led by global economic recovery, ongoing fiscal policy measures and increase in domestic private demand. We believe that the risk of a delay in vaccine rollout will be one of the main downside risk for Thailand’s economic recovery especially since it is dependent on tourism activity.

Source: Affin Hwang Research - 19 Feb 2021