Morning Briefing: Turkey’s CB Raises Interest Rate Sharply, While ECB, BoE Hold Key Rates

ECB head Office - Photo by European Central Bank

JAKARTA (TheInsiderStories) Turkey‘ Central Bank has hiked its key interest rate to a blistering 24 percent, up from 17.75 percent to bring price stability under control and to impose furthere monetary tightening if needed, after seeing inflation hit 17.9 percent last month.

Meanwhile, European Central Bank (ECB) and Bank of England (BoE) leaves interest rates on hold, each 0 percent and 0.75 percent.

The BoE leave interest rates on hold since its quarter point hike in August and the economic data has been consistent with its forecasts. At the same time, the ECB confirmed that it will wind down its asset purchase program by the end of the year.

In addition, the development of the United Kingdom (UK) and European Union (EU) negotiations regarding Brexit gave a fresh breeze to the global market.

Go to the domestic issues, Indonesian government and House of Representatives  have agreed on macro assumptions in the 2019 draft State Budget.

The House’s Commission XI and government agreed the economic growth 5.3 percent, inflation: 3.5 percent, Rupiah 14,400 per US$, interest rate 5.3 percent, unemployment rate 4.8 – 5.2 percent, poverty rate 8.5 – 9.5 percent, Gini Ratio 0.038 – 0.039,
and Human Development Index 71.98.

Go to domestic financial market, the Rupiah against the greenback was corrected again at the close of trading on Thursday (13/09) to 14,840. In contrast, the Rupiah’s middle rate at Bank Indonesia rose 0.46 percent to a level of 14,794 per US dollar.

US’ Labor Department reported on Thursday its Consumer Price Index (CPI) increased 0.2 percent in August after a similar gain in July. In the 12 months through August, the CPI increased 2.7 percent, slowing from July’s 2.9 percent rise.

The US inflation data in the consumer sector or CPI is estimating will affect the movement of the Rupiah today. The Rupiah has the potential to strengthen at the close with a range of 14,760 – 14,890 per American dollar.

The volatility of the Rupiah coupled with the increased risk of investment in emerging market countries encouraged the sale of Government bonds by foreign investors. Based on data from the Ministry of Finance, foreign ownership on the government securities debt as of Sept. 12, 2018 amounted to Rp835.25 trillion.

This figure fell by R20.54 trillion from the position at the end of August of Rp855.79 trillion. The trend of bond sales conducted by foreign investors began to be seen since the beginning of September.

This is in line with the rupiah exchange rate fluctuations against the US dollar. Conditions are getting worse after several emerging market countries such as Argentina, South Africa, or Venezuela are hit by a currency crisis.

As a result, the perception of investment risk or Credit Default Swaps (CDS) in emerging market countries increased. Indonesia’ CDS alone for a 5-year tenor was at 148.48 on Sept. 5, the highest level this year.

This sentiment kept foreign investors continuously recording net sell in a row on the Indonesian bond market until Sept. 12, although in the same period the rupiah rebounded several times.

In contrast, long-term foreign investors tend to keep investing in the Indonesian bond market in order to obtain optimal profit potential thanks to the high yield of Government bond. In fact, the 10-year SUN has penetrated the 8.47 percent level.

Go to stock market, the Jakarta Composite Index rose 1.04 percent to 5,858.27 on Thursday. Foreign investors said net sell was Rp193.72 billion. The strengthening was driven by new negotiations between the US and China which eased trade war tension.

Hope you have a profitable day

TIS Intelligence Team, Email: