BI signals end to rate hikes, optimism on inflation target

  Bank Indonesia (BI) has announced that a rate hike in January is adequate to meet its inflation
  target, which economists take to mean that the central bank is ending its monetary tightening
  phase. 

  At its board of governors meeting on Thursday, BI upped the benchmark seven-day reverse
  repo rate (7DRRR) by 25 basis points (bps) to 5.75 percent, the same increase as in
  December. 

  The lending and deposit facility rates also rose by 25 bps to 6.50 percent and 5 percent,
  respectively, following the key policy rate. 

  The central bank's latest rate action was in line with estimates published beforehand by state-
  owned Bank Mandiri and publicly listed private-lender Bank Danamon. 

  "The more calculated decision on the policy rate increase is a follow-up step to ensure
  continued lower inflation expectations and headline inflation in a front-loaded, preemptive and
  forward-looking measure to maintain core inflation," Perry told reporters after the monthly two-
  day monetary-policy meeting. 

  When asked by reporters about the possibility of a further increase, Perry asserted that the rate
  hikes from August through January were already “adequate” to achieve the bank’s targets on
  core and headline inflation. 

  After the government raised fuel prices in September, the central bank estimated that headline
  inflation would rise above 6 percent in December due to upward pressure on prices of goods
  and services with volatile and administered prices, notably food and transportation. 

  However, government efforts to alleviate inflation pressure by mobilizing regional budgets to
  subsidize transportation and fixing staple food supply chains have helped bring down the
  annual consumer price index growth from 5.95 percent in September to 5.51 percent in
  December. 

  Core inflation, which measures the year-on-year (yoy) rise in consumer prices excluding
  government-controlled prices and volatile food prices, and which is the main determinant of
  BI’s interest-rate decisions, was only 3.36 percent last month, well within the central bank’s
  target range of 2 to 4 percent. 

  As such, the central bank revised down its core inflation forecast from “below 4 percent” to
  “below 3.7 percent” in the first half of 2023. 

  For headline inflation, meanwhile, the bank maintains its view that the figure will come back
  down to the 2-to-4-percent target range in the second half of this year. 

  “Bank Indonesia believes that the 7DRRR hike of 225 bps from August 2022 to 5.75 percent is
  adequate to ensure core inflation [stays] within the [range of] 3 plus/minus 1 percent in the first
  semester of 2023,” Perry said. 

  The rupiah’s exchange value, having appreciated 3.18 percent year-to-date (ytd) against the
  United States dollar, has outperformed currencies of peer countries like the Malaysian ringgit
  and the Indian rupee, which appreciated 2.04 percent ytd and 1.83 percent ytd, respectively. 

  Foreign capital inflows to the domestic financial market have helped the rupiah strengthen,
  Perry said, as investors perceived Indonesia’s macroeconomic fundamentals as stable,
  financial securities yields as comparatively attractive and market uncertainty as relatively low. 

  In addition to its existing policy on trading government bonds in the secondary market, the
  central bank plans to expand its monetary operations to the use of forex term deposits for
  natural resources export revenues starting in mid-February. 

  BI data point to US$4.6 billion in net portfolio-investment inflows per Jan. 17 since the turn of
  the year. 

  “Bank Indonesia predicts that the rupiah will continue to strengthen in line with the improving
  economic prospects, and therefore will reduce inflation, " Perry continued. 

  The central bank is expected to hold back on further changes to its key interest rate for the rest
  of the year, Bank Mandiri economist Faisal Rachman told The Jakarta Post on Thursday. 

  Due to the perceived less-hawkish stance of several major central banks, including the United
  States Federal Reserve (Fed), capital inflows to the bonds market have contributed to the
  rupiah appreciation and lessened the inflationary pressure and hence the need to raise rates. 

  Headline inflation is estimated to ease in the second half of this year and fall to 3.6 percent yoy
  in December. 

  “[BI could] shift its stance [in response to] major events that could significantly change the
  outlook,” Faisal cautioned, however. 

  The signal to not raise rates further was “reckless” in light of the recent rice-price increase and
  the possibility of rate-policy shifts in major central banks, Center of Economic and Law Studies
  (CELIOS) director Bhima Yudhistira opined. 

  The government is racing against time to import 425,000 tonnes of rice this month, as imports
  are not allowed during the next few months due to the harvesting period. 

  BI data show that the rice price has increased by 1.85 percent yoy to Rp 13,700 per kilogram. 

  “There is room for three more rate hikes,” Bhima told the Post. 

  Source: The Jakarta Post 

  Indonesia says BASF, Eramet near $2.6 bln deal to process nickel for
 EV batteries

  Germany's BASF and French miner Eramet are finalizing a US$2.6 billion partnership deal to
  invest in a facility in Indonesia to process nickel for use in batteries for electric vehicles,
  Indonesian officials said. 

  The Indonesian announcement comes as Southeast Asia's biggest economy has been
  courting global companies to build facilities to produce EV batteries and electric cars to exploit
  the country's rich nickel resources. 

  In separate emailed responses, the companies confirmed they were assessing a hydro-
  metallurgical project to produce battery-grade nickel and cobalt from Eramet's mine in
  Indonesia's Weda Bay, but did not confirm the proposed investment. 

  Indonesia's investment ministry cited BASF chief executive Martin Brudermüller as saying the
  project investment would be worth around 2.4 billion euros ($2.59 billion). 

  "We would like to convey that our agreement with Eramet is at the final stage. It is likely that
  our decision will be taken in the first half of 2023," the ministry quoted Brudermüller as saying. 

  Eramet said in a statement the project was subject to a final investment decision and further
  details would be disclosed if a decision was made. 

  BASF spokesman Paul Warkentin also said more details would be given once an assessment
  had been concluded. 

  The planned plant would produce mixed hydroxide precipitate (MHP) from nickel through a
  high-pressure acid leach (HPAL) plant. MHP is used in electric vehicle batteries. 

  Eramet said the plant could start production in early 2026 investment decision subject to a final
  investment decision, with an output capacity of up to 67,000 tonnes of nickel and 7,000 tonnes
  of cobalt contained in MHP per year. 

  BASF and Eramet's investment plan was in line with the government's "aspirations to set up
  Indonesia as world-class EV player," said Indonesian Investment Minister Bahlil Lahadalia. 

  Indonesia is also finalizing agreement with Chinese automaker BYD Group and Tesla to invest
  in EV production facilities, a senior cabinet minister said on Tuesday. 

  Once the biggest supplier of nickel to the global stainless steel industry, nickel producers in
  Indonesia have been retooling so they can take advantage of the growing demand for nickel in
  batteries. 

  While overall battery demand for nickel makes up a small portion of the 3 million tonne market,
  Indonesia is primed to become the world's biggest supplier as it builds out some 4.5 million
  tonnes of capacity that can supply both markets over the next five years, analysts estimate. 

  Investment into MHP production in Indonesia has so far been dominated by Chinese
  companies such as Zhejiang Huayou Cobalt and Tsingshan Holding Group. 

  Separately, Australia's Nickel Industries said on Wednesday it will raise $471 million in capital
  to help fund the acquisition of several nickel projects in Indonesia. 

  To develop battery nickel, the company will also look to collaborate with Shanghai Decent
  Investment (Group) Co Ltd, a unit of the Tsingshan Group. 

  Source: Reuters 

  Indonesia’s trade surplus hits record high in 2022

  Indonesia’s trade surplus hit a record high of US$54.46 billion last year amid a global increase
  in commodity prices and a disruption to the global supply chains as a result of the Russia-
  Ukraine war.  

  The surplus was a 53.75 percent increase from the $35.42 billion in 2021. It was caused by
  increases in prices and export shipments of commodities like coal, crude palm oil and iron.  

  Data from Statistics Indonesia (BPS) on Monday (Jan 16) showed that 2022 exports were worth
  $291.98 billion, an increase of 26.07 percent compared to the year before. Imports in 2022
  were valued at $237.52 billion, an increase of 21.07 percent compared to 2021. 

  Among its trading partners, Indonesia benefitted the most from its trade with the US, and saw
  the biggest bilateral deficit with Australia. 

  The US accounted for the largest portion of Indonesia’s overall trade surplus last year.
  Excluding oil and gas products, the US imported US$18.89 billion more from Indonesia than it
  exported to the Southeast Asian country 

  Knitted clothing and accessories worth $2.86 billion made up the largest commodity imported to
  the US from Indonesia, followed by machinery and electrical equipment worth $2.83 billion.  

  Other countries which contributed the highest to Indonesia’s trade surplus were India and the
  Philippines.  

  Excluding oil and gas products, Indonesia experienced its largest trade deficit of $6 billion with
  Australia. This is due to its import of coal and cereal amounting to $1.93 billion and $1.72 billion
  respectively.  

  It also incurred high trade deficits with Thailand and China.  

  According to BPS data, the country’s exports have exceeded its imports for 32 consecutive
  months. 

  TRADE SURPLUS “NOT SUSTAINABLE”: ECONOMIST 

  Speaking to CNA, Jakarta-based economist Bhima Yudhistira from the Center of Economic and
  Law Studies (CELIOS) said that the trade surplus Indonesia is seeing is “only temporary”.  

  “This is not sustainable. Just look at the data as of December, exports are starting to trend
  down,” said Mr Bhima.  

  He forecasted that 2023 will see a smaller trade surplus or “even a deficit” as imports into the
  country have increased due to the relaxation of COVID-19 movement restrictions in Indonesia.  

  “As domestic activity begins to grow, imports (will) rise. But exports to the three central regions -
  America, Europe and China - are still experiencing uncertainty…” said the economist.  

  Mr Bhima also called on the government to allow for a greater diversification of exports and for
  the strengthening of the domestic base to cushion the impact of a potential economic
  slowdown.  

  "There needs to be diversification of export products which are finished goods or manufactured
  products. Secondly, (Indonesia) must strengthen the domestic base because it can be a
  temporary diversion of some commodities that are falling/weakening,” he said.   

  Source: CNA