Monetary Policy Stance amid the Risk of Uneven Global Growth and External Imbalance

Transcription

1 Monetary Policy Stance amid the Risk of Uneven Global Growth and External Imbalance Agus D.W. Martowardojo Governor Bank Indonesia Prepared for Mandiri Investment Forum, January 27, 2015

2 2 1 Global Economic Constellation

3 Multi Speed Recovery: A Weak and Uneven Economic Recovery Across The Globe 3 Global Economic Growth Landscape (%) Oct 2014 Projection Jan 2015 Projection Oct 2014 Projection Jan 2015 Projection World US Euro Area Japan China Russia India Source: IMF

4 Increased Volatility Together with USD Appreciation Emerging Market Volatility G7 Countries Volatility USD Trade Weight Index (RHS) Note: Volatility Indexes refer to JP-M Volatility Index Source: Bloomberg, JP Morgan

5 Global Economic & Financial Crisis: More Frequent, With the Shorter Interval 5 Subprime Mortgage Crisis Mexico Econ Crisis Argentina Econ Crisis Icelandic Fin. Crisis Irish Bank Crisis Global Financial Crisis European Debt Crisis Asia Financial Crisis Russia Ruble Crisis

6 United States: Solid Employment, Strong Growth 6 (%) GDP Unemployment (%) I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III Source: CEIC

7 China: Lower Growth, Uncertain Prospect Spreading the Negative Spillover to EM 7 (%) 15 China GDP Emerging & Developing Asia GDP *) forecast Source: IMF

8 Euro: ECB Quantitative Easing is Coming, 8 1,1 Trillion Euro to fight deflation and cure the stubbornly high unemployment (%) Euro GDP Euro Unemployment (%) Risk of Economic Stagnation Source: Bloomberg

9 Thousands Japan Bond-Buying Program: The Next Chapter of Extreme Monetary Policy 9 (Yen Trillion) 350 Bank of Japan Total Asset Japan Inflation (%) BoJ Bond-Buying Program Source: Bloomberg

10 Global Liquidity In The Near Future: 10 Are They Replaceable? (%) Central Bank Money Supply Growth ECB BoJ FED Toward FED Normalization Note: Money Supply M2 Source: Bloomberg

11 The Increasing Trend of Foreign Holding on Government Bond Pose Vulnerability Challenges for Macro-Environment 11 (Rp Trillion) Foreign Holding in the Indonesian Bond Market Indonesian Government Bond (Stock) Foreign Holding of Indonesian Government Bond % 35% % 25% % % Note: Money Supply M2 Source: Bloomberg

12 12 2 Twin Shocks

13 13 Falling Oil Prices Twin Shocks The Strength of the US $ Dollar

14 Unique Price Drop: Oversupply Driven by the Supply Side 14 (Million Barrel / Day) 97 Spread World Oil Demand World Oil Supply 95 Oversupply (Million Barrel / Day) Undersupply Source: Bloomberg

15 A Positive Supply Shock for Asia The Impact of every 10% drop in oil prices on Asian Economies 15 Thailand Korea Philippines Taiwan India Hong Kong Singapore China Indonesia Malaysia GDP Inflation CA Balance estimates (percentage point) Note: CA Balance refer to CA/GDP Source: BoFA

16 Robust US Dollar Performance Smashes All Emerging Market Currencies 16 (Index Jan 14 = 100) 120 Exchange Rate Index Versus US Dollar Japanese Yen Malaysian Ringgit Brazilian Real South African Rand Turkey Lira Indonesian Rupiah Indian Real Thailand Baht Philippines Peso 90 Source: Bloomberg

17 Euro & Japanese Yen Have Weakened By Design USDEUR USDJPY Source: Bloomberg

18 The US Dollar Has Only Just Started to Rise Trade Weighted US Dollar Index Against Main Trading Partner (1997=100) Strongest USD Position (2002) Note: Main trading partner comprises 26 countries + Euro Area Source: FRED

19 19 3 Structural Challenges

20 Fed Fund Rate: After More Than 6 Years, Any Tiny Rise Will Affect. 20 (%) FED Fund Rate Emerging Market Volatility Index (%) 6 > 6 Years of Ample Liquidity 5 4 Crisis Source: FED, JP Morgan (JP-M Emerging Market Volatility Index)

21 Indonesia Records the Highest Portofolio Inflows Ever 21 (RP Trillion) 45 Capital Flows Gov. Bond BI Certificates Equity The FED Tapering Outflow Rp 40 Trillion Free-Fall of Russian Ruble Outflow Rp 28.4 Trillion Source: BI

22 Q1 Furthermore, a vulnerabilities that can constrained our sustained growth path Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1** Q2** Q3** 22 (USD Billion) Indonesia Current Account Current Account (% GDP) Nominal Current Account (%) * 2014 Note: *) Preliminary Figures Source: BI

23 But it entail risks Rapid Growth of Private External Debt (USD Billion) Indonesia External Debt Government Private Source: BI

24 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Addressing Q1 Q2 Q3 Q4 Q1** Q2** Q3** 24 Macro Imbalances (USD Billion) Capital & Financial Account Current Account Overall Balance * 2014 Note: *) Preliminary Figures, **) Very Preliminary Figures Source: BI

25 Fundamental Inefficiency in the Indonesia Economy 25 (%) Indonesia Bank Rate Spread Deposit Rate Lending Rate Crisis Source: World Bank

26 Higher investment risk behind an inefficient economy should be solved by addressing the structural challenges 26 (%) Lending Rate 25 Across Income Group (Average ) Low 20 Income 15 Lower-Middle Income Upper-Middle Income High Income Source: World Bank

27 27 4 Policy Direction

28 (%) Core inflation remained stable Hovering around 4.0±1% in the last five years where monetary policy play a key role in preserving inflation expectations stayed under control Indonesia Core Inflation Source: BPS, BI

29 Core Inflation Why Inflation Targetting? 29 To Achieve High Growth, We Have To Maintain Low & Stable Inflation (%) Indonesia Core Inflation VS Economic Growth Real Economic Growth Period: (quarterly) Source: BI, BPS (%)

30 Wages Pressure 30 Higher inflation must push the wages to go up, even faster than the price itself, hurting our real sector competitiveness (%) Minimum Wages Pressure (YoY) Inflation (YoY) Source: BPS

31 Consistent & Bold 31 Monetary Policy Measure 20 Fuel Rp4500 BI Rate 100 bps BI Rate Inflation Fuel Rp Fuel Rp6000 BI Rate 25 bps BI Rate 25 bps 10 Fuel Rp6500 BI Rate 25 bps 5 0 Fuel Rp2400 BI Rate 25 bps Source: BI, BPS

32 32 5 Outlook

33 Outlook Economic Growth % Inflation 4±1% Current Account Deficit -2.5 to -3% GDP Credit 15-17% Deposit 14-16%

34 34 Thank You! Bank Indonesia January, 2015