Indonesia Plans Stimulus to Boost Consumption Amid Slowdown
Comment of the Day

June 13 2012

Commentary by Eoin Treacy

Indonesia Plans Stimulus to Boost Consumption Amid Slowdown

This article by Hidayat Setiaji for Bloomberg may be of interest to subscribers. Here is a section:
Indonesia's policy makers have signaled they are prepared to support the economy with monetary and fiscal stimulus as Europe's protracted sovereign-debt crisis threatens global expansion and crimps demand for Asian exports. The economy may expand at the lower range of Bank Indonesia's forecast of about 6.3 percent to 6.7 percent in 2012, Governor Darmin Nasution said this month, while exports fell in April for the first time since 2009.

“During this time, exports aren't the main driver to support our growth,” Brodjonegoro said. “As exports have fallen, we'll boost consumption and investment.”

Bank Indonesia kept the benchmark reference rate at 5.75 percent for a fourth month yesterday, holding off from easing policy to support a weakening currency. The rupiah has fallen about 4 percent this year, the worst performer in Asia after India's rupee, as the escalating European crisis hurt exports and spurred outflows from emerging markets.

Indonesia has taken steps to reduce excess funds in the economy and contain inflation risks even as price gains unexpectedly eased in May, resisting the cuts in borrowing costs pursued by Australia and China in recent weeks.

Eoin Treacy's view Recessions and low growth environments in Europe and the USA have required substantial intervention by respective governments over the last few years to avoid a deflationary environment. By contrast a number of Asian economies, not least Indonesia, have been actively attempting to contain inflation over the same period. As the Eurozone's current woes threaten to have a knock-on effect for Asia, these countries find themselves in a better position to ease than many others.

The US Dollar has been trending higher against the Indonesian rupiah since September and a sustained move below IDR9150 would be required to suggest a return to rupiah outperformance.

The Jakarta Composite failed to hold the move to new highs in May and pulled back rather sharply. It has stabilised in the region of the 200-day MA but will need to sustain a move above 4000 to confirm a return to demand dominance beyond the short term.

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