Riset Ekonomi, 14 Juni 2013

RISET FR CIMB 14 JUNI 2013 :


1.Economic Update   | Jun’s MPC - Biting the bullet
Author(s): Michelle CHIA,

Unexpectedly, Bank Indonesia (BI) raised the BI rate by 25bp to 6.00% at its scheduled meeting today, two days after it bumped the FASBI rate up by 25bp to 4.25%. We believe its hand has been forced by the sharp deterioration in market sentiment, as capital outflows from bond and equity markets gather pace. The early move may also indicate that the government is close to finalising a rise in subsidised-fuel prices. Hence, we expect further monetary tightening in Jul and keep our forecasts at 4.75% for the FASBI rate by 3Q13 and 6.25-6.50% for the BI rate by end-2013.

BI rate lifted by 25bp to 6%
The central bank has raised the BI rate by 25bp today, to 6.00%, against market and our expectations. This is its first increase since Feb 2011. The decision came on the heels of an increase in the deposit facility (FASBI) rate by 25bp to 4.25% on 11 Jun. The repo rate, the upper band of the interest rate corridor, was kept at 6.75%. We had initially thought that the central bank would hold until an official announcement from the government on fuel subsidies, before raising the BI rate. However, adverse investor sentiment as manifested in sharp capital outflows and excessive rupiah depreciation has apparently tested and exceeded its pain threshold.

Signs that fuel-price increases are near?
We also read this move as a signal that the government is close to finalising its fuel-subsidy policy. The President has set a 17 Jun deadline for finalising the state budget, which should be closely followed by the implementation of higher subsidised-fuel prices. We expect the latter to boost inflation substantially above BI’s comfort levels of 3.5-5.5%.