Economy: The World Bank Office in Indonesia predicted that the country’s economy is expected to begin reopening and recovering in August this year despite the Covid-19 pandemic pressure. The prediction constituted one of the World Bank’s three assumptions on the country’s economic growth this year. According to the World Bank, Indonesia’s economy as a whole this year would not grow or grow by zero percent. It was in line with the Bank’s projection that the global economy would experience contraction by up to 5.2 percent in 2020, the worst recession since World War II. The prediction t was also made based on an assumption that there would be no second wave of the pandemic. The forecasts would be subject to change if the three assumptions change.
The World Bank forecasted the East Asia and Pacific region to experience some sharp decline to half percent in 2020, from nearly six percent in 2019, as most countries impose lockdown measures to control the outbreak. Furthermore, economic disruptions have been most severe in countries, with larger domestic breakouts and those that rely heavily on a global trade, tourism, commodity exports, and external financing.
Monetary: Bank Indonesia (BI) on 16 July cut monetary policy rates for the fourth time this year as the country’s economy is battered by the global pandemic. Policymakers at BI reduced BI Rare (the BI 7-day Reverse Repo Rate) by 25 basis points to 4.00 percent. Deposit Facility (DF) rate was also reduced by 25 bps to 3.25 percent, and so was Lending Facility (LF) rate by 25 bps to 4.75 percent. The decision is consistent with low projected inflation and maintained external stability, as well as a follow-up actions to drive the national economic recovery during the Covid-19 pandemic. BI Governor said the latest rate cut was a “further step” to boost the struggling economy, adding that there were signs of a recovery as a stimulus plan kicks in and virus restrictions are eased. “But we’re not back to pre-pandemic levels,” the governor warned.
According to its press release, to catalyze national economic recovery during the pandemic, BI is focusing on strengthening a synergized expansive monetary policy response with accelerated fiscal stimuli from the government. To that end, Bank Indonesia is firmly committed to funding the State Revenue and Expenditure Budget (APBN) in 2020 using measured SBN (state debt securities) purchases in the primary market through market mechanisms and private placements to finance the budgets for healthcare, social protections, sectoral government ministries and agencies as well as local government, underpinning the national economic recovery program. Furthermore, BI is also sharing the burden with the government to accelerate the MSME and corporate sector recoveries.
Finance: Bank Indonesia (BI) assesses that transmission of bank lending rate cuts is still slow. In fact, the low interest rate regime implemented by the central bank aims to help the government to recover the economy that was depressed by the co-19 pandemic. BI has lowered 175 basis points of the benchmark interest rate, but new lending rates have fallen 74 bps. The average bank lending rate is still in the range of 9.99 percent from 10.73 percent previously.
Conversely, banks’ deposit rates have been cut 116 bps from 6.6 percent to 5.50 percent. In addition to the high lending rates at banks, the low lending rate is also due to the banking sector being more stringent in selecting debtors due to high risks in the midst of current economic uncertainty. Therefore, BI considers that the guarantee process is very important. It appears that the government has been focusing on it in order to encourage banks to extend credit to finance the economy. BI hopes that another 25 bps BI Rate reduction to reach 4.00 percent would provide the banks with wider space to cut interest rates on funds and transmit them into lower rates of lending.
Industry: Car sales in Indonesia began to improve along with the relaxation of large-scale social restriction (PSBB) in many regions in June. The increase is quite significant, more than 70 percent compared to May. However, the sales record is still far from the month average in 2019. The Indonesian Automotive Industry Association (Gaikindo) recorded retail sales or dealer sales to consumers in June rose to 29,862 units or grew 74, 8 percent compared to May with 17,083 units.
The increase was also seen in wholesales (from Brand Holder Agency/APM to dealers), which in May was 3,551 units, increasing to 12,623 units in June, or 255 percent. In spite of increase, the sales were still far from the normal volume before the Covid-19 pandemic. Retail car sales in June 2019 amounted to 65,972 units, while wholesales 59,831 units. In June 2020, Toyota was still the market leader in occupying the highest sales with 11,196 units. The second position was Daihatsu with the sales if of 5,558 units, followed by Suzuki 4,206 units, and Honda 2,488 units. Meanwhile, Mitsubishi’s passenger vehicle division ranked fifth after selling 1,689 units of car.