SINGAPORE, SINGAPORE--(Marketwired - Apr 12, 2013) - In his ASEAN Market Review for 12 April, leading global foreign exchange trainer, educator and author Mario Sant Singh - whose views are widely sought after in the Forex industry, focuses on Indonesia's interest rate and inflation concerns.
BI keeps rate unchanged, subsidizes fuel restriction
The Bank of Indonesia kept the benchmark interest rate unchanged yesterday at 5.75%. There is extremely limited room for the central bank to lower the rate again in the near term, due to inflation spurs on the fuel-subsidy policy.
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Source: Bloomberg, FXPRIMUS
The question now is whether the government will decide to restrict subsidized fuel consumption or increase the fuel price. If local officials tend to limit fuel subsidies for more reservation for other infrastructure spending, this might result in accelerating demand for the oil.
Both measures will likely increase the inflation rate moving forward. However, it looks like the subsidies restriction may have a lower inflation impact than increasing prices. Other restrictions could be banning luxury cars to purchase subsidized fuel.
Benefits of the subsidized fuel restriction aims to save the government's budget, relying on infrastructure and local investments to spur growth, or increasing social welfare.
On the negative side, the current subsidized program seems to benefit rich citizens in Indonesia, as data suggests that this group purchases more than 70% of subsidized fuel. It is possible that any decisions made could target the "pro-poor" to protect the lower-income group and the middle-to-high income group.
Manufacturing activities in Indonesia still resilient
Indonesia's manufacturing PMI rose to 51.3 in March, rising from the 50.5 level in February, indicating an improving condition in the Indonesian manufacturing sector. The resilient number in March was mainly bolstered by faster expansion in new orders, leading the production rise as well. The domestic region mainly contributed to the increasing orders, instead of overseas demand, consistent with the sharp exports drop in February.
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The recent weaker Rupiah since late 2011 failed to boost trading revenue as trade deficits widen further. February exports had negative growth by shrinking 4.5% YoY, and imports rose to 3.03% YoY, causing trade deficits to widen to USD327.4 million.
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Source: Bloomberg, FXPRIMUS
Yesterday, the central bank said the Gross Domestic Product (GDP) may increase from 6.2% to 6.6% in 2013, slightly lower than the previous statement of 6.3% to 6.8%. It also lowered growth estimates for 2014.
Previous ASEAN Market Review: ASEAN Market Review for 29 March 2013: More Macro-prudential Tools to Curb Inflow to Philippines
ABOUT MARIO SANT SINGH
Mario Singh is the Director of Training & Education at global retail Forex brokerage FXPRIMUS. He has appeared as a guest expert on CNBC more than 35 times to talk about foreign exchange markets, and is a regular contributor to top investment publications and online portals. Known as a brilliant and intense communicator with a unique ability to 'keep Forex simple' and a mission to help every man-in-the-street to trade profitably and responsibly in the Forex market, more than 20,000 people have attended his Forex trading programs. He is the only Forex trader in Asia invited to train Julius Baer Private Bankers - the third largest Swiss Bank, and ICBC, China's largest commercial bank. Mario is also author of the best-selling book, 17 Proven Currency Trading Strategies: How to Profit in the Forex Market. (Wiley Publishing).
FXPRIMUS offers retail traders a level of trade execution, service quality and fund safety that are normally reserved only for the largest investors. Serving traders in 205 countries across 6 continents FXPRIMUS combines an unmatched level of fund safety with regular independent audits of company financials and Straight Through Processing, top notch execution with tight spreads, prompt and responsive customer support, ISO 27001 certification in Information Security and an industry-leading trader toolset that includes free access to powerful trader tools and personal coaching via FXPRIMUS Coach FXPRIMUS truly is The Safest Place To Trade.