JAKARTA (TheInsiderStories) – Good morning. Bank Indonesia (BI) move to maintained BI 7-Day Reverse Repo Rate (BI-7DRR) at 5.25 percent does not provide fresh air to the domestic financial market. Whereas, BI’s governor Perry Warjiyo said, board of governor maintained the interest rate to keep the Indonesian financial market attractive.
Yesterday, Rupiah is weakened to the level of Rp14.442 against the greenback or 0.19 percent weaker than previous day. The pressure also colored the Jakarta Composite Index (JCI) which fell on the same day. On Thursday, JCI closed down 0.33 percent to 5,871.08 compared to a day before.
Some analyst judged, the weakening of the rupiah has been expected caused the market is still shrouded on testimony of Federal Reserve Governor Jerome Powell and other global issues like China’s second-quarter economic growth fell, the European Central Bank lowered its expectations of European growth, and Britain is still struggling with Brexit.
To give ammo to the market, currently BI is reviewing the reactivation of Bank Indonesia Certificates with tenor 9 and 12 months. The issuance of certificates was again pursued by the central bank in order to attract foreign investors into the domestic financial market and maximize the stabilization of the rupiah.
The analysts said that the plan is quite reasonable, considering that BI has made various alternative steps to maintain Rupiah stability during this time. The issuance also is legitimately re-done to curb the external turmoil that is still shaking the domestic market, especially the current value of the Rupiah.
However, they stressed it, the position of the certificate will not be the same as the first because of the different publishing purposes. Formerly BI’s certificate are issued because bond instruments are not attractive at that time.
Although the issuance of the central bank’s certificate does have a small risk and even tend to risk-free, this will have an impact on the monetary costs of BI.
Meanwhile, to boost the economic growth and credit expansion, BI is banking on a revival of the sluggish property sector. Starting August, the central bank will scrap its 15 percent minimum mortgage downpayment for first-time homebuyers and relax rules on loan disbursements.
The Bank estimates the eased mortgage rules will add 0.04 percentage points to economic growth this year. BI’s growth forecast is 5.1-5.2 percent in this year, compared with 2017’s 5.07 percent.
Recently, Standard & Poor’s expects property sales to be flat this year despite BI’s new measures. Analyst Chan Kah Ling, referring to the parliamentary and presidential polls next April, said there will be a major recovery but everything will probably move at pedestrian pace until the second half of 2019 and after the elections at best.
For us, a flip-flop policy will give uncertainty to the investors and could bring uncofidence on the domestic economy. BI should cautious policy-making amid the current global economic development and ahead of general election.