Jakarta, CNBC Indonesia – Indonesia’s financial markets showed a convincing performance in the last trading this week. Both the stock market, forex, or bonds all closed higher.
The Composite Stock Price Index (JCI) ended this week’s trading in the green zone, even approaching the psychological level of 7,000. At the close of trading on Friday (20/5/2022), the JCI rose 1.39% at 6,918.14 and foreign investors recorded a net buy of IDR 372.6 billion.
The JCI movement followed the Asian stock markets which were compact in the green zone. Hong Kong’s Hang Seng Index was up 2.96% and Singapore’s Straits Times Index was up 1.66%.
Meanwhile, in trading last Friday, the rupiah also strengthened to a level of Rp. 14,650/US$ from the previous day of US$ 14,730/US$. The bond market also showed a positive performance. The price of compact government bonds or Government Securities (SBN) closed higher on Friday (20/5/2022) trading this weekend.
Launching data from Refinitiv, the yield on 10-year SBN, which is the state’s benchmark SBN, weakened again by 5.6 bp to a level of 7.280%.
Yield is in the opposite direction of price, so a decrease in yield indicates that bond prices are strengthening, and vice versa. The unit of measurement of a basis point is equal to 1/100 of 1%.
Market Sentiment
A number of important agendas and news are awaited by market participants this week. The Indonesian financial market will take the Ascension of Isa Almasih holiday on Thursday (26/5/2022) so that the buying and selling activities of stocks or bonds may be congested on Monday-Wednesday.
Of the many agendas next week, the meeting of the Board of Governors (RDG) of Bank Indonesia (BI) is the agenda that is likely to be the most monitored by the market this week. BI will hold a monthly RDG on Monday and Tuesday next week (23-24 May) while announcing its monetary policy.
The market is now waiting to see what BI will do after inflation soared in April, the Fed’s benchmark interest rate hike, and the government has revealed plans to increase the budget for subsidies.
BI Governor Perry Warjiyo at the RDG meeting last April said BI would first wait for the government’s steps to mitigate the increase in food and energy commodity prices before raising interest rates. BI will also only consider developments in core inflation to determine the benchmark interest rate.
Referring to data from the Central Statistics Agency (BPS), core inflation was recorded at 0.36% (month to month (mtm) and 2.60% (year on year/yoy). On an annual basis, core inflation at that level is the highest since May 2020.
On Thursday (19/5/2022), Finance Minister Sri Mulyani disclosed the government’s plan to increase subsidies in order to maintain fuel prices and electricity tariffs for underprivileged groups. The total subsidy that will be added is Rp 443.6 trillion to ensure that subsidized fuel, LPG and electricity prices do not increase. The government will also increase the social protection budget by Rp 18.6 trillion.
A number of economists and analysts believe that Bank Indonesia will not increase the BI-7 Day Reverse Repo Rate this month. However, some of them predict that the Indonesian central bank will raise interest rates starting this May.
OCBC economist Wellian Wiranto estimates that BI will start raising its benchmark interest rate this May because inflation is already too high.
Besides BI, South Korea’s central bank will announce their monetary policy next Thursday (26/5/2022). The Bank of Korea surprised by raising interest rates to 25 bps in April.
Other sentiments that can move the market are the announcements of economic growth in a number of countries such as Germany (25/5/2022) and the estimated economic growth of the United States (US) in the second quarter of this year (26/5/2022).
The US economy contracted 1.4% in the first quarter of this year, in contrast to growing 6.9% in the fourth quarter of 2021.
Market participants will also wait for the Fed Chair Jerome H. Powell’s speech at the National Center for American Indian Enterprise Development (NCAIED) 2022 Reservation Economic Summit, Tuesday (24/5/2022). Markets await whether Powell’s remarks will still behawkish earlier after fears of a US recession escalated.
From Europe, the agenda monitored by the market is the World Economic Forum Annual Meeting which will be held until May 22-26. On Tuesday (24/5/2022), European Central Bank (ECB) President Christine Lagarde will speak at the forum. So far, the ECB has not raised its benchmark interest rate in the midst of rising global benchmark interest rates.
A Reuters survey of economists on May 10-16 showed the ECB is expected to raise deposit rates by 25 basis points in July.
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