Economic Highlights (Indonesia) - 07/05/2014

Money Supply Moderated Further, Economic Activities Will Be Marginally Lower

¨      Indonesia’s Money Supply (M2) growth moderated further to 10.0% y-o-y in March, from +10.9% in February and +11.6% in January. The slower M2 growth was due to a slowdown in net foreign asset but mitigated by higher domestic activities. The latter was supported by a sustained growth in the private credit, while net claims on the central government fell by a larger magnitude due to lower government spending realisation.  

¨      The growth of deposit and credit eased further in March. As the growth of loans outpaced that of deposits, the loan to deposit ratio of the banking system increased slightly to 94.7% in February. Going forward, we expect the private credit to continue slowing down, on the back of higher borrowing costs and we expect a tightening bias to prevail in 2H 2014, after remaining stable in the 1H.

¨      Indonesia’s foreign exchange reserves inched-down by USD0.1bn to USD102.6bn in March, from USD102.7bn in February. The decline was due to government bond payment during the month. Going forward, the foreign reserves position is expected to remain relatively stable to provide an underlying support to the currency. However, the IDR will likely suffer some weakness in the short term due to recent concern over a deterioration in 1Q 2014’s current account deficit. We are off the view that this will likely be temporary. Overtime, in view of improving optimism and foreign investors’ confidence after they have adjusted well to the QE tapering, we expect the IDR to appreciate to an indicative rate of 11,400 IDR/USD at the end of 2014 along with higher foreign exchange reserves.

This message is intended only for the use of the person(s) to whom it is addressed and may contain information that is privileged or otherwise protected from disclosure. If you are not the intended recipient you are hereby notified that any use, review, disclosure or copying of this message and the information it contains is prohibited. If you receive the message in error, please notify the sender by reply e-mail and discard all its contents.   Thank You.