34
Monetary Policy Stance amid the Risk of Uneven Global Growth and External Imbalance Agus D.W. Martowardojo Governor Bank Indonesia Prepared for Mandiri Investment Forum, January 27, 2015
Monetary Policy Stance amid the Risk of
Uneven Global Growth and External
Imbalance
Agus D.W. Martowardojo
Governor
Bank Indonesia
Prepared for Mandiri Investment Forum, January 27, 2015
1 Global Economic
Constellation
2
Multi Speed Recovery: A Weak and Uneven Economic Recovery Across The Globe
3
2012 2013 2014 2015 2016
Oct 2014 Projection
Jan 2015 Projection
Oct 2014 Projection
Jan 2015 Projection
World 3.4 3.3 3.3 3.8 3.5 4.0 3.7
US 2.3 2.2 2.2 3.1 3.6 3.0 3.3 Euro Area
-0.7 -0.4 0.8 1.3 1.2 1.7 1.4
Japan 1.5 1.5 0.9 0.8 0.6 0.8 0.8
China 7.7 7.7 7.4 7.1 6.8 6.8 6.3
Russia 3.4 1.3 0.2 0.5 -3.0 1.5 -1.0
India 4.7 5.0 5.6 6.4 6.3 6.5 6.5
Global Economic Growth Landscape (%)
Source: IMF
4
Source: Bloomberg, JP Morgan
Increased Volatility Together with
USD Appreciation
60
65
70
75
80
85
0
2
4
6
8
10
12
14
Emerging Market Volatility
G7 Countries Volatility
USD Trade Weight Index (RHS)
Note: Volatility Indexes refer to JP-M Volatility Index
Global Economic & Financial Crisis: More Frequent, With the Shorter Interval
5
Mexico Econ Crisis
Asia Financial
Crisis Argentina Econ Crisis
Subprime
Mortgage Crisis
Global Financial
Crisis
Irish Bank Crisis
Icelandic Fin. Crisis
European Debt Crisis
1994
2008-2010 2008-2012
2007
1999-2002
2010-2011
1997-1998
Russia Ruble Crisis
2014-2015
2008-2009
United States:
Solid Employment, Strong Growth
6
2.3
-4.1
3.1 2.7
4.5
10.2
5.7
2
6
10
-6
-4
-2
0
2
4
I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III
2007 2008 2009 2010 2011 2012 2013 2014
GDP Unemployment(%) (%)
Source: CEIC
China: Lower Growth, Uncertain Prospect Spreading the Negative Spillover to EM
7
6
9
12
15China GDP Emerging & Developing Asia GDP
(%)
Source: IMF *) forecast
Euro: ECB Quantitative Easing is Coming, 1,1 Trillion Euro to fight deflation and cure the stubbornly high unemployment
8
6
7
8
9
10
11
12
13
-6
-4
-2
0
2
4
6
Euro GDP Euro Unemployment(%) (%)
Source: Bloomberg
Risk of Economic
Stagnation
Japan Bond-Buying Program: The Next Chapter of Extreme Monetary Policy
9
-3
-2
-1
0
1
2
3
4
5
0
50
100
150
200
250
300
350
Th
ou
san
ds
Bank of Japan Total Asset Japan Inflation(%) (Yen Trillion)
Source: Bloomberg
BoJ
Bond-Buying
Program
Global Liquidity In The Near Future:
Are They Replaceable?
10
0
2
4
6
8
10
12
2010 2011 2012 2013 2014
ECB BoJ FED
(%) Central Bank Money Supply Growth
Source: Bloomberg Note: Money Supply M2
Toward FED
Normalization
The Increasing Trend of Foreign Holding on
Government Bond Pose Vulnerability Challenges for
Macro-Environment
11
Foreign Holding in the Indonesian Bond Market
Source: Bloomberg Note: Money Supply M2
470.80
0.37
15%
20%
25%
30%
35%
40%
200
250
300
350
400
450
500Indonesian Government Bond (Stock)
Foreign Holding of Indonesian Government Bond
(Rp Trillion)
2 Twin Shocks
12
Twin Shocks
13
Falling
Oil Prices
The Strength
of the US
Dollar $
14 Unique Price Drop: Oversupply Driven by the Supply Side
Source: Bloomberg
-6
-4
-2
0
2
4
6
8
89
91
93
95
97
2013 2014
Spread World Oil Demand World Oil Supply
(Million Barrel / Day) (Million Barrel / Day)
Oversupply
Undersupply
15 A Positive Supply Shock for Asia
The Impact of every 10% drop in oil prices on Asian Economies
Source: BoFA
-0.2
0.1
0.15
0.15
0.2
0.25
0.25
0.3
0.45
0.45
Malaysia
Indonesia
China
Singapore
Hong Kong
India
Taiwan
Philippines
Korea
Thailand
-0.3
-0.4
-0.25
-0.1
-0.15
-0.4
-0.25
-0.45
-0.25
-0.25
-0.1
0.3
0.2
0.4
0.5
0.4
0.2
0.2
0.6
0.8
GDP Inflation CA Balance
(percentage point)
Note: CA Balance refer to CA/GDP
estimates
Robust US Dollar Performance Smashes All
Emerging Market Currencies
16
90
95
100
105
110
115
120
Japanese Yen
Malaysian Ringgit
Brazilian Real
South African Rand
Turkey Lira
Indonesian Rupiah
Indian Real
Thailand Baht
Philippines Peso
(Index Jan 14 = 100)
Source: Bloomberg
Exchange Rate Index Versus US Dollar
Euro & Japanese Yen
Have Weakened By Design
17
Source: Bloomberg
100
105
110
115
120
125
0.7
0.75
0.8
0.85
0.9
0.95 USDEUR USDJPY
The US Dollar Has Only Just Started to Rise 18
90
95
100
105
110
115
120
125
130
135
Source: FRED
Trade Weighted US Dollar Index
Against Main Trading Partner
(1997=100)
Note: Main trading partner comprises 26 countries + Euro Area
Strongest USD Position (2002)
3
19
Structural
Challenges
Fed Fund Rate: After More Than 6 Years,
Any Tiny Rise Will Affect.
20
5
10
15
20
25
30
0
1
2
3
4
5
6
FED Fund Rate Emerging Market Volatility Index(%) (%)
> 6 Years of Ample Liquidity
Source: FED, JP Morgan (JP-M Emerging Market Volatility Index)
Crisis
Indonesia Records the Highest
Portofolio Inflows Ever
21
-45
-30
-15
0
15
30
45
Gov. Bond BI Certificates Equity(RP Trillion)
The FED Tapering Rp 40 Trillion
Outflow
Free-Fall of Russian Ruble
Outflow Rp 28.4 Trillion
Capital Flows
Source: BI
Furthermore, a vulnerabilities that can
constrained our sustained growth path
22
Source: BI Note: *) Preliminary Figures
2.47
-4.47
-3.07
-6
-5
-4
-3
-2
-1
0
1
2
3
4
-20
-15
-10
-5
0
5
10
15
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
**
Q2
**
Q3
**
2009 2010 2011 2012 2013* 2014
(%) (USD Billion) Indonesia Current Account
Nominal Current Account
Current Account (% GDP)
But it entail risks...
Rapid Growth of Private External Debt
23
134
161
40
70
100
130
160
190Government Private
(USD Billion)
Indonesia External Debt
Source: BI
Addressing
Macro Imbalances
24
-12
-7
-2
3
8
13
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
**
Q2
**
Q3
**2011 2012 2013* 2014
(USD Billion)
Capital & FinancialAccount
Current Account
Overall Balance
Source: BI Note: *) Preliminary Figures , **) Very Preliminary Figures
Fundamental Inefficiency in the
Indonesia Economy
25
Source: World Bank
-8
-6
-4
-2
0
2
4
6
8
10
0
5
10
15
20
25
30
35
40
45Spread Deposit Rate Lending Rate
(%) Indonesia Bank Rate
Crisis
Higher investment risk behind an inefficient
economy should be solved by addressing the
structural challenges
26
0
5
10
15
20
25
(%) Lending Rate
Across Income Group
(Average 2009-2013) Low
Income
Lower-Middle Income
Upper-Middle Income
High Income
Source: World Bank
4
27
Policy
Direction
28
Source: BPS, BI
10.20
8.69
3.56
5.15
3.98
4.93
2
4
6
8
10
12
1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
(%)
Core inflation remained stable Hovering around 4.0±1% in the last five years
where monetary policy play a key role in preserving
inflation expectations stayed under control
Core Inflation Indonesia
Why Inflation Targetting? 29
3
4
5
6
7
8
9
10
11
3 4 5 6 7 8
(%)
(%)
Source: BI, BPS
Core Inflation VS Economic Growth
Co
re I
nfl
ati
on
Real Economic Growth
“To Achieve High Growth, We Have To Maintain Low & Stable Inflation”
Indonesia
Period: 2002-2014 (quarterly)
Wages Pressure 30
Source: BPS
19.78
8.36
0
5
10
15
20
25
30
35
40Minimum Wages Pressure (YoY) Inflation (YoY)
(%)
Higher inflation must push the wages to go up, even faster than
the price itself, hurting our real sector competitiveness
Consistent & Bold
Monetary Policy Measure
31
0
5
10
15
20BI Rate Inflation
Fuel ↑ Rp2400
BI Rate ↑ 25 bps
Fuel ↑ Rp4500
BI Rate ↑ 100 bps
Fuel ↑ Rp6000
BI Rate ↑ 25 bps
Fuel ↑ Rp6500
BI Rate ↑ 25 bps
Fuel ↑ Rp8500
BI Rate ↑ 25 bps
Source: BI, BPS
5
32
Outlook
Outlook 33
Economic Growth 5.4 - 5.8%
Inflation 4±1%
Credit 15 - 17%
Deposit 14 - 16%
Current Account Deficit -2.5 to -3% GDP
2015
