* Indonesia's trade balance recorded a surplus US$ 0.99 billion in December 2016, increased from a surplus US$ 0.83 billion in November 2016. The widening of trade surplus is due to the increase in exports faster than imports. Indonesia’s exports in December 2016 stood at USD 13,772.4 million rose by 2.0% m-o-m. On yearly basis, Indonesia’s exports also increased by 15.6%

Remain on Hold

       The process of global economic recovery is still at a steep road and haunted by a variety of challenges such as the economic slowdown in China, the impact of Brexit, tightening of US monetary policy, the impact of Trump policy, and geopolitical problems that occur in some countries in the world. As a result, prospects across the main countries and regions remain uneven in this year. China's economy growth slightly improved to 6.8% y-o-y in 4Q 2016, compare from 6.7% y-o-y in the previous quarter. Meanwhile, the China’s Purchasing Manager Index (PMI) manufacturing indicator decreased to 51.3 in January 2017 compare 51.4 in the previous month. The China’s Industrial Production Index was also slowing growth at 6.0% y-o-y in December 2016, compare with 6.2% y-o-y in one month earlier. The China’s exports growth fell by 6.2% y-o-y in December 2016. EU economy growth maintained at 1.8% y-o-y in 4Q 2016, stable compare the previous quarter. European PMI Manufacturing indicator increased to 55.2 in January 2017 from 54.9 in one month earlier. European Industrial Production Index growth improved to 3.0% y-o-y in November 2016, compare 0.8% y-o-y in the previous month. Meanwhile, Japanese economy growth improved to 1.1% y-o-y in 4Q 2016, compare with 0.9% y-o-y in the previous quarter. In the other hand, Japanese PMI indicator slightly increased from 52.4 in December 2016 to 52.4 in January 2017.  Japan industrial production index was improving growth to 4.7% y-o-y in December 2016 compare 2.9% y-o-y in November 2016.  Meanwhile, the US economy improved growth to 1.9% y-o-y in 4Q 2016, compare 1.7% y-o-y in the previous quarter. The US PMI increased to 56.0 in January 2017 compare 54.5 in one month earlier. The US industrial production index was improving growth to 0.5% y-o-y in December 2016 from contraction 0.7 % y-o-y in November 2016.

       On the domestic side, Indonesia successfully booked higher economic growth from 4.88% in 2015 to 5.02% in 2016 was driven by better conditions on the household consumption, the non-profit institutions serving households, and the exports. The government’s expenditure, unfortunately, recorded slowing growth from 2015 to 2016 was mainly related to a lack fiscal ammunition to realize aggressive the state spending budget. Going forward, we expect Indonesian economy to sustain its economic growth above 5% in 2017. It’s supported by recent manageable external pressures and the commodities prices rally. The government consumption, especially for infrastructure spending, is also expected to regain momentum after recent satisfied performances from the tax amnesty performances and earlier fiscal spending realization. Furthermore, we see the consumption expenditures will sustain its growth momentum this year. Investment is also expected to remain buoyant. Those aforementioned factors are expected to sustain Indonesia’s economic growth from 5.02% in 2016 to 5.10% in 2017.

       Indonesia's trade balance recorded a surplus US$ 0.99 billion in December 2016, increased from a surplus US$ 0.83 billion in November 2016. The widening of trade surplus is due to the increase in exports faster than imports. Indonesia’s exports in December 2016 stood at USD 13,772.4 million rose by 2.0% m-o-m. On yearly basis, Indonesia’s exports also increased by 15.6% y-o-y. On the other hand, the total imports in December 2016 reached to USD 12,780.3 million, rose by 0.9% m-o-m. On yearly basis, Indonesia’s imports increased by 5.8% y-o-y. Meanwhile, Indonesia’s current account deficit recorded -0.75% per GDP in 4Q 2016, better from -1.92% per GDP in 3Q 2016. Current account deficit narrowed in 4Q 2016, mainly driven by the growing trade surplus and declining services and primary income. Meanwhile, we expect Indonesia's current account deficit will be reached approximately -1.95% per GDP in 2017, widening from -1.75% per GDP in 2016 due to domestic economic recovery leads to increased imports, at the same time export performance is still depend on the prices of commodity and  the recovery of global demand.

       Yearly inflation rose to 3.49% y-o-y in January 2017, compared with 3.02% y-o-y in the previous month. Meanwhile, consumer price index increased to 0.97% m-o-m in January 2017 from 0.42% m-o-m in the preceding month. Furthermore, the monthly inflation in January 2017 mainly comes from higher prices of vehicle registration fee, electricity tariff, foodstuffs, cigarette, housing contract, mobile phone tariff, gasoline, and car price. Looking ahead, we expect yearly inflation will reach 4.28% in 2017 increase compare 3.02% in 2016. The increase in inflation this year due to the increase in administered tariffs such as electricity rates, vehicle registration fee, and the price of non-subsidized fuel. On the other hand, food prices are still fluctuating in this year

       Rupiah strengthened 0.69% m-o-m to 13,343 in January 2017 due to the weakening USD. Meanwhile, foreign outflows occurred on Indonesia stock market. Foreigners booked net-sell of USD 72.6 million in January 2017. On other side, from latest data showed foreigner booked net buy in bond market during the month of January 2017 by adding IDR 19.7 trillion. Furthermore, Indonesia's foreign reserves in January 2016 slightly rose to US$116.9 billion, compare from US$ 116.4 billion in the previous month.  The increase was primarily attributable to foreign exchange receipts, such as tax revenues and government oil & gas export proceeds, as well as auction of Bank Indonesia foreign exchange bills, that surpassed the use of foreign exchange among other for repayments of government external debt and Bank Indonesia foreign exchange bills matured during the period.

       Indonesia’s money supply (M2) growth in December 2016 improved. M2 position in December 2016 stood at Rp 5,003.3 tn, or grew 10.0% y-o-y, higher than 9.3% y-o-y in the previous month. By component, the increase in M2 growth came from components of the money supply in the M1 and the securities other than shares, each of which grew 17.3% y-o-y and 0.9% y-o-y, higher than the growth in November 2016 recorded respectively 12.5% y-o-y and 2.9% y-o-y. Meanwhile, bank loan grew 8.0% y-o-y in December 2016, lower from 8.5% y-o-y in November 2016. Meanwhile, the growth of third party funds improved to 8.9% y-o-y in December 2016 compare with 8.4% y-o-y in the previous month.

       Based on the above factors and to maintain the balance of Indonesia's macroeconomic stability and the recovery of the domestic economy, we expect Bank Indonesia remains on hold the policy rates in this month. We expect the BI 7-day reverse repo rate is maintained at 4.75%, the deposit facility rate at 4.00%, and the lending facility rate at 5.50% on the Board of Governors Meeting February 15-16^th, 2017.