This Week's Headlines (18 - 25 Aug 2023)

25 Aug 2023

Multilateral Cooperation
This Week's Headlines

Bank Indonesia holds rates steady, plans new way to attract inflows  


Indonesia's central bank left interest rates unchanged on Thursday, as expected, saying current levels are sufficient to keep inflation in check, while strengthening efforts to stabilise the rupiah currency. 


Bank Indonesia (BI) plans to issue new rupiah-denominated securities, using its holdings of government bonds as the underlying asset, as a new monetary instrument aimed at attracting foreign portfolio capital flows, Governor Perry Warjiyo said. 


BI kept the benchmark 7-day reverse repurchase rate (IDCBRR=ECI) at 5.75% for its seventh straight monthly policy review, as widely expected by economists surveyed by Reuters. Its two other main rates were also left unchanged. 


BI has been trying to balance currency stability, keeping inflation in check and maintaining growth momentum in Southeast Asia's largest economy as exports fall amid softening commodity prices. 


There have been calls for the bank to start considering rate cuts to shore up growth after inflation cooled to within its target earlier than expected, but some economists say further tightening is necessary to prevent capital outflows. 


Guarding the rupiah "is our way to protect the domestic economy, inflation and growth from global spillovers," Warjiyo told reporters. 


"All countries are experiencing currency depreciations, our focus is to stabilise the exchange rate through intervention," the governor said, especially by intervening in the spot and domestic non-deliverable forward markets and relying on its new securities. 


"We have over 1,000 trillion rupiah of government bonds that we can use as underlying assets for the Bank Indonesia Rupiah Securities," he said, adding that the notes will have 6-, 9- and 12-month maturities and are to be offered from Sept. 15. 


The new notes will replace BI's reverse repo with the same tenors used in monetary operations and can be traded on the secondary market, Warjiyo told a separate call with analysts. 


With the new instrument, the bank will also switch the use of its bond holdings from the so-called 'Operation Twist' where it sells short-term government bonds and buys long-term bonds to help stabilise yields and the rupiah. 


The rupiah, which had gradually fallen since mid-July to its weakest levels since March, strengthened 0.3% against the U.S. dollar ahead of the announcement and was steady after the rate decision. 


The rupiah is still up about 2% this year, but has come under pressure along with bonds amid rising U.S. Treasury yields and economic weakness in China. 


And while Indonesia's second-quarter growth beat expectations due to higher consumption, the outlook for the remainder of 2023 remains bleak due to a contraction in exports while a general election early next year has held back investment. 


Inflation slowed in July to 3.08%, roughly the midpoint of the central bank's 2% to 4% target range. 


"BI signalled a preference to tap a confluence of intervention efforts, measures to draw more dollar inflows ... to address the more pressing currency depreciation pressures," said Radhika Rao, economist with DBS Bank, calling the rate decision "the middle path to balance stability and inflation priorities". 


BI kept its 2023 economic growth forecast in a range of 4.5% to 5.3%, predicting inflation will be at 2.9% by year end and within a target range of to 1.5% to 3.5% in 2024. 


"With inflation set to remain firmly within target and downside risks to the economic outlook elevated, we remain convinced that interest rate cuts will be starting from October," said Shivaan Tandon of Capital Economics. 


Meanwhile, analysts at Bank Danamon said they expected the BI's monetary stance to remain neutral unless another Federal Reserve surprise rattles markets and causes a deep weakening in the rupiah. 


Source: Reuters 

Jokowi Says Indonesia 'Not in a Rush' to Join BRICS


President Joko "Jokowi" Widodo ensures that Indonesia has no plan to join BRICS amid the bloc's expansion. Indonesia, Jokowi said, has not submitted its expression of interest letter. "We want to examine and calculate [BRICS membership] first. We don't want to be in a rush," he said as stated in a press release on Thursday, August 24, 2023. 


BRICS (Brazil, Russia, India, China, and South Africa) is currently inviting Saudi Arabia, Iran, Ethiopia, Egypt, Argentina, and the UAE to join BRICS as part of its effort to boost influence in the Global South. The expansion is also extended to other countries amid the geopolitical polarization that triggers China and Russia to use the BRICS as a balancing power to the West. 


Jokowi also emphasized that Indonesia's relationship with the five members of the BRICS is top-notch, especially with regard to economic relations. 


South Africa President Cyril Ramaphosa announced on Thursday, August 24, that new members of BRICS will be welcomed on January 1, 2024. The discussion concerning expansion was the main agenda during the summit in Johannesburg. 


Despite openly expressing their support of expansion, the members debated over how large and how fast the BRICS expansion would be. 


BRICS houses 40% of the world's population and a quarter of the global GDP. However, its failure to implement a coherent vision causes the bloc to lose its weight as a global economic and political actor. 


Previously, more than 40 states expressed their interest in joining BRICS, said a South African official. Around 22 countries have been accepted among the fold. Most of the countries joining are interested in BRICS' pledge to rebalance the global order. 


Source: Tempo 

Air Pollution in Jakarta: Governor Wants Civil Servants to Work from Home


The air pollution (polusi udara) in Jakarta are choking millions of the city inhabitants while the government is still gasping for solutions. One of the proposed solutions is telling the civil servants to work from home again to reduce the pollution. 


The residents of Greater Jakarta (Jabodetabek) are concerned as the IQAir app has been listing Jakarta as one the countries with the worst air quality in the world. Last week, Jakarta reached the top spot. South Tangerang city in the west of Jakarta also ranks among the worst. 


Vehicles have often been blamed by the government as the cause of pollution, although President Joko Widodo surprisingly also mentioned the problem with coal.  


The Ministry of Environment said that vehicles contribute 44 percent of pollution in Jakarta. Acting Governor of DKI Jakarta Heru Budi Hartono said roughly half of the civil servants of Jakarta's provincial government will have to work from home, and the ministries are asked to apply similar policy. 


"We just discussed WFH to reduce transportation which is used by the civil servants of DKI Jakarta. WFH is 50 percent - 50 percent or 40 percent, 60 percent, to reduce the activities of DKI's regional government. We also asked other ministries to perform WFH together," said Heru Budi Hartono after a meeting with President Joko Widodo at Freedom Palace on Monday (14/8/2023). 


As the COVID-19 pandemic subsides, government offices already stopped the WFH policy. Some companies in the private sectors still have flexible hybrid works. 


Heru also said that the province will strengthen the regulation for high rise buildings to apply the green building concept. 


The Health Authority in Jakarta has advised people to wear masks in the open space as the risk of air pollution range from asthma, hipertension, to heart problems. 


President Joko Widodo has acknowledged the worsening air quality in Jakarta. Surprisingly, the president pointed out that coals are part of the problems, that besides the vehicle emissions, industrial activities in Jabodetabek also caused the pollution. 


"Especially those that use coal in the manufacturing industry sector," said President Jokowi during a meeting at Freedom Palace, Jakarta, on Monday. 


The president suggested that the government open more green spaces in Jakarta and prepare the budget for that purpose. Another idea is weather engineering to artificially create rain in Jabodetabek area.  


Regarding work from home, President Jokowi shows his preference for hybrid works that combine WFH and WFO (work from office).  


Furthermore, Jokowi is relying on mass transportation systems to reduce air pollution. The Light Rail Transit (LRT) in Jakarta will soon be operated alongside the popular Mass Rapid Transit (MRT), and the president also reiterated the government's support for electric vehicles. 


"I suppose this month LRT is to be operated immediately. MRT also already operated, and then the high-speed train next month will operate as well, and also the acceleration of public transport electrification with the help of assistance," said Jokowi. 


Source: Liputan6