Morning Briefing: China’s Central Bank Policy Relaxation Sends Ripple to Emerging Market

JAKARTA (TheInsiderStories) – Good morning. The People’s Bank of China’s decision to relax the reserves requirement ratio for banks was interpreted negatively by market participants, sending ripples throughout emerging markets like Indonesia.

Chinese central bank lowered the ratio by 100 basis points to 14.5 percent for large bank and 12.5 per cent for small, a move which will inject a net US$109.2 billion into the banking system when it takes effect on Oct. 15.

Market sees the policy relaxation as an indication of unease in the all controlling Chinese administration over the state of its economy particularly due to the impact of ensuing trade war with the United States.

Furthermore, the move can be seen as a deliberate move by China to weaken its currency to make its exports more competitive, supplementing the narrative by the US government that the world’s second-largest economy commits unfair trade practices.

The Rupiah weakened from 15,182 per US$1 to 15,193 per US$, according to Bank Indonesia’s reference rate, influence by a report that shows US September unemployment rate is at the lowest level since December 1969. The local unit had fallen over the last five trading sessions.

But, the Jakarta Composite Index rose 0.5 per cent to 5,761 despite foreign investors net sold equity worth Rp900 billion ($62.07 million). The equity market finds supports from positive sentiments on third quarter corporate earnings which will start to be released this month.

For today, the central bank’s report that shows Indonesia’s retail sales grew 6.1 percent on-year in August, accelerating from 2.9 per cent on-year in July, may also provide positive boost to the financial market.

Another key development is the government’s debt auction, which could reach as much as Rp20 trillion in proceeds. The government’s debt auction had attracted strong demands despite recent volatility in the financial market.

Meanwhile, all key economic policymakers are in Bali to host and entertain foreign guests coming for the World Bank-IMF Annual Meeting which will start on Friday. Some key attendees of the meeting are central bankers and finance ministers from key economies.

The government, after strong criticisms by the opposition camp over the cost of hosting such event, organized a highly symbolic signing ceremony of several infrastructure projects in Bali.

From political scene, two key figures who went missing for a while started to make public appearances. First is tycoon Aburizal Bakrie, a former chairman of the Golkar Party and a running mate of the opposition’s Presidential Candidate Prabowo Subianto in the last presidential election.

Another is the former commander of the armed forces Gatot Nurmantyo, who seemed to harbor political ambitions but failed to secure any substantial support for the 2019 presidential election. Nurmantyo so far had not made any of his views public with regards of the next year’s political contest, thought it is highly unlikely that the four-starred general will carry a significant influence.

May you have a profitable day.

US$1: Rp14,500

Written by TIS Intelligence Team