Monetary Focus: Navigating the Domestic Economy Amid Risks Agus D.W. Martowardojo Governor Bank Indonesia Prepared for Mandiri Investment Forum (MIF) 2018 February, 7 2018, Jakarta
BAL ECONOMIC RECOVERY CONTINUE: BECOMING MORE BROAD-BASED AS 2017: 2.2 2018: 2.2 EU 2017: 2.2 2018: 1.9 Japan 2017: 1.4 2018: 0.7 China 2017: 6.8 2018: 6.5 World 2017: 3.6 2018: 3.6 India 2017: 6.9 2018: 7.2
HER WORLD TRADE VOLUME AND COMMODITY PRICES Description GDP (%) US China Japan Euro India World Trade Volume (%) Brent Oil Prices (USD/Barrel) Commodity Prices (%) 2017 2018 3.6 3.6 2.3 2.2 6.8 6.5 1.6 0.7 2.3 1.9 6.9 7.2 4.3 3.6 52 57 21.7 0.5
PRICES IS ALSO ON AN UPWARD TREND BRENT Price Yearly Average 70 69.08 69.02 60 53.59821705 54.74562016 50 45.13182171 40 42.69 41.8 44.82 30 20 27.88 2015 2016 2017 2018 Source: Bloomberg, as of Jan, 30 2018
DUAL MONETARY TIGHTENING IN ADVANCED COUNTRIES Rate Hike Curren QE/Balance t Rate sheet Change Euro Area 2015 20106 2017 bps bps bps 0,00% 0-5 0 2018 QI QII QIII QIV Tapering Begins Firs depo rate hike 2019 USA 1,50% 25 25 75 Mar 18 Jun 18 Dec18 UK 0,50% 0-25 25 May 19 Japan -0,10% 0-20 0 Canada 1,00% -50 0 50 Apr 18 Oct 18 Australi a 1,50% -50-50 0 Feb 18 Aug 18 New Zealand 1,75% -100-75 0 Feb 18 May 18 Aug 18 Sweden -0,50% -35-15 0 Apr 18 Oct 18 Norway 0,50% -50-25 0 Dec18 ING, Goldman Sachs, HSBC, ANZ, processed
FUND RATE STARTED TO INCREASE SINCE YEAR-END OF 2015 BI-RATE BI-7 Days Repo Rate FED Fund Rate (RHS) 14 12 %[VALUE] May 2006 5.25 % 6 5 10 9.5 4 8 Nov 2008 7.75 6 4 5.75 May 2013 Jan 2016 3 4.25 2 1.5 2 0.25 [VALUE] 1 0 Dec 2015 2005 2006 2007 2008 2009 2010 20111 2012 2013 2014 2015 2016 2017 0
ONESIA S ECONOMY REMAINS ON STRONG FOOTING %, YoY PERTUMBUHAN EKONOMI NASIONAL Economicc Growth 6.5 6.0 6.17 6.03 5.03 % 5.07 % 5.56 5.5 5.0 5.01 4.88 4.94 5.21 5.03 4.94 5.01 5.01 5.06 5.19 4.5 4.0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Source: BPS
TER GROWTH IN RESOURCES-RICH REGIONS ACEH 3,58 SUMUT 5,56 Sumatera (22%) [VAL 4.29 4.09 4.11 4.43 UE] 2016 I'17 II'17 III'17 IV'17 RIAU 2,58 SUMBAR 5,37 BENGKULU 4,60 JAMBI 5,20 SUMSEL 5,93 2.01 KEP. RIAU 2,57 KALBAR 5,80 LAMPUNG 5,31 KEP. BABEL 2,94 DKI 5,88 Kalimantan (7,9%) 4.92 4.44 4.67 [VAL UE] 2016 I'17 II'17 III'17 IV'17 KALTENG 5,34 KALTARA 7,04 KALSEL 4,46 KALTIM 1,61 SULBAR 6,,63 SULSEL 7,78 Sulawesi (6%) [VAL 7.42 6.83 6.49 6.69 UE] 2016 I'17 II'17 III'17 IV'17 SULTENG 9,15 GORONTALO 7,82 SULTRA 6,12 SULUT 6,53 MALUT 8,30 PAPBAR 6,32 MALUKU 5,11 NATIONAL 5.02 5.01 5.01 5.06 [VALU E] 2016 I'17 II'17 III'17 IV'17 PAPUA 4,78 DRB 7,0%,0% PDRB < 7,0%,0% PDRB < 6,0%,0% PDRB < 5,0% % PDRB < 4,0% DRB < 0% BANTEN 5,75 JABAR 5,32 Jawa (58,5%) [VAL 5.59 5.68 5.43 5.51 UE] JATENG 5,40 JATIM 5,72 DIY 5,25 BALI 4,01 NTB 0,58 Bali Nusra (3,1%) 5.89 2.47 3.24 5.24 [VAL UE] NTT 5,29 Mapua (2,5%) 7.45 3.99 4.49 3.98 [VAL UE] : BPS (processed) 2016 I'17 II'17 III'17 IV'17 2016 I'17 II'17 III'17 IV'17 2016 I'17 II'17 III'17 IV'17
ANCE OF PAYMENTS IS EXPECTED TO RECORD A LARGE SURPLUS INDONESIA S BALANCE OF PAYMENT USD Billion Current Account Capital and Financial Accunt Overall Balance 15 15.2-1.1 12.1 10.6 10 5 0-5 -10-15 I II III IV I II III 2014 2015 IV I II III IV I* II* III** 2016 2017 * Preliminary Figures** Very Preliminary Figures Source: Bank Indonesia
RING EXPORTS, MAINLY FOR NON OIL AND GAS COMMODITIES Billion USD TRADE BALANCE 3 Non Oil and Gas Oil and Gas Total 2 1 0-1 -2 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12
IAH HAS BEEN RELATIVELY STABLE RUPIAH MOVEMENT COMPARISON WiTH OTHER CURRENCIES upiah / USD upiah 700 600 500 13536 13615 [VALUE] (Feb, 5 18) TRY ZAR BRL -3.27% -0.61% YTD 2018 vs 2017 Average Point to point 0.00% 1.96% 1.52% 8.75% 400 300 200 100 13306 USD/IDR Monthly Average Quarterly Average 13337 13160 13388 [VALUE] (Jan, 25 18) INR KRW PHP THB MYR IDR -2.54% -3.23% -0.47% -0.59% -0.04% 0.33% 2.21% 2.94% 3.75% 5.42% 6.15% 8.23% -5.0% -3.0% -1.0% 1.0% 3.0% 5.0% 7.0% 9.0% 11.0% ource: Reuters s offeb, 5 2018 Source: Reuters, Bloomberg As of Feb, 52018
RNATIONAL RESERVES AT RECORD HIGHH Billion USD 150 120 International Reserve Months of Imports and Servicing Government External Debt (RHS) Month 9 130.2 8 90 7 60 6 30 5 0 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 4 Source: Bank Indonesia
ROVING RISK PERCEPTION bps 300 [VALUE] (Sept 2015) 250 200 150 100 50 CDS Risk Premium 5 years [VALUE] (Jan, 9 2018) [VALUE] (Jan, 29 2018 Jan-15 Feb-15 Mar- Apr-15 May- Jun-15 Jul-15 Aug- Sep-15 Oct-15 Nov- Dec-15 Jan-16 Feb-16 Mar- Apr-16 May- Jun-16 Jul-16 Aug- Sep-16 Oct-16 Nov- Dec-16 Jan-17 Feb-17 Mar- Apr-17 May- Jun-17 Jul-17 Aug- Sep-17 Oct-17 Nov- Dec-17 Jan-18
COMPOSITE POSTED ANOTHER RECORD HIGH IDX Composite Yearly Average 7000 (Jan, 29 2018) 6680.619 6500 6000 5500 5500.9 5458.979 5952.138 5000 5027.704 4500 4000 4120.503 (Sept. 2015) 3500 2015 2016 2017 2018
ATION STAYS WITHIN TARGET FOR 3 CONSECUTIVE YEARS %,yoy 20 CPI Core Volatile Food Administered Price 16 12 8 8.70 4 0 3.61 2.95 0.71-4 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 2012 2013 2014 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 2015 2016 2017
BANKING SYSTEM S RESILIENCE REMAINS INTACT Trillion Rp NPL Gross 2,9% NPL Net 1,3% Capital (RHS) Source: Bank Indonesia Risk Weighted Assets (RHS)
DIT GROWTH : LOWER THAN EXPECTED Bank s Credit Growth %, YoY 16% Total Working Capital Credit Investment Credit Cons Credit 14% 12% 10% 8% 7.86% 6% 4% 2% 0% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Source: Bank Indonesia 10.26% 7.47% 7.47% 4.50% May Jun Jul Aug Sep Oct Nov Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr
BANK FINANCING SOARED ONBANK FINANCING 700 Trillion Rp 600 Non Bank Financing Bank Financing (Loan) 500 400 300 200 234.4264898 309.8 100 0-100 2013 2014 2015 2016 2017 Source: KSEI
E RISKS CALL FOR CONTINUED VIGILANCE External Risk Monetary policy normalisation in advanced countries, geopolitical tension, and rising oil prices Domestic Risk Prolonged corporate consolidation, sluggish credit growth, and rising inflation BANK
OLICY MIX : MAINTAIN MACROECONOMIC AND FINANCIAL STABILITY MONETARY POLICY Maintain inflation within the target range and manage the current account deficit at a healthy level EXCHANGE RATE POLICY Maintainexchange rate stability in line with it s fundamental value, while also maintaining market mechanisms MACROPRUDENTIAL POLICY Strengthen financial system resilience against systemic risk through implementation of Macroprudential Intermediation Ratio (MIR) and Macroprudential Liquidity Buffer
TER ECONOMIC PERFORMANCE GOING FORWARD GDP INFLATION 2017* 2018* 2017 2018* ± 5.1 Rp CAD 5.1 5.5 % 3.61 3,5±1% CREDIT 2017 2018* < 2% 2 2.5 % 2017 2018* ± 8% 10 12% Sumber: BPS, OJK, & Bank Indonesia; * Proyeksi Bank
ONESIA : INVESTMENT DESTINATION OF CHOICE Economist: Indonesia rounds out the top five of Asian economies that can look forward to increased investment ding. (January 2018)* China India Indonesia Vietnam Singapore Australia Hong Kong Thailand South Korea Japan Philippines Malaysia Myanmar Taiwan 18.2 20.2 30.6 30.1 28.8 28.7 28 26.6 24.7 24.3 36.9 44.1 47.1 69.4 0 10 20 30 40 50 60 70 80 Source: The Economist Asia Business Outlook Survey 2018
ONESIA : INVESTMENT DESTINATION OF CHOICE AD: Indonesia is listed as the top 5 prospective investment destination in the world (June 2017)** United States (1) 40 China (2) 36 India (3) 20 Indonesia (8) 11 Thailand (14) 11 Brazil (7) 9 United Kingdom (4) 7 Germany (5) 7 Mexico (7) 7 Philippines (9) 6 Spain (25) 5 Vietnam (14) 4 Singapura (18) Canada (18) Australia (13) 3 4 4 % of executives responding (x) = 2016 ranking 0 5 10 15 20 25 30 35 40 45 Source: United Nations Conference on Trade and Development (UNCTAD) World Investment Report 2017
ONESIA : INVESTMENT DESTINATION OF CHOICE Among ASEAN countries, Indonesia is one of the most preferred place for business investment (November 2017) China India Vietnam Thailand Indonesia USA Mexico Philippines Myanmar Brazil Korea Malaysia Russia Singapore Turkey 6.3 6.3 5.9 4.3 3.8 2.7 9 10.6 18.2 26.1 33.1 34.5 38.1 43.9 45.7 0 5 10 15 20 25 30 35 40 45 50 Source: JBIC Outlook for Japanese Foreign Direct Investment (29th Annual Survey)
2017 AT KEARNEY FDI CONFIDENCE INDEX MOST IMPORTANT FACTORS FOR INCREASING FDI Avaiability of Quality Targets 34% Macroeconomic Environment Availability of Funds Risk Tolerance Foreign Exchange Dynamics 29% 27% 27% 25% Regulatory Environment Prices of Targets 20% 22% Reserve Requirements 13% 0% 10% 20% 30% 40%
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