In the last quarter of 2018 and in January 2019, we have seen the return of investors’ appetite to invest in Indonesia. The Indonesian stock market has been surging on the back of improved capital inflows. As of this writing, the Jakarta Composite Index, the country’s main stock market index, has approached and crossed the 6,500 level. Similarly, rises have also been seen in the fixed income market, for which foreign capital has again started to flow because government paper still generates relatively attractive yields. These inflows have resulted in improved Central Bank foreign exchange reserves.
One of the factors contributing to the attractiveness of Indonesian securities is the relative stability of the exchange rate. After the introduction of the Domestic NDA market in Jakarta, the exchange rate of the rupiah gained strength before stabilizing slightly above the Rp. 14,000 level per US dollar. With the stronger rupiah, Indonesian stock prices in US dollars have increased in value. That has helped to considerably improve the market capitalization of listed companies on the Indonesian Stock Exchange. Bank BCA, for instance, the third largest bank in Indonesia, has already surpassed the market capitalization of DBS Bank of Singapore, which has assets seven times larger. With that, the market capitalization of Bank BCA has topped the banks in Southeast Asia.
On the external front, Central Board of Statistics reported another deficit in the trade balance report for December 2018. Exports that month reached $14,177.3 million, down 4.89% month over month and 4.62% year over year. Meanwhile, imports reached $15,279.3 million, down 9.6% month over month, although higher by 1.16% year over year. This brought the trade balance for December 2018 to a deficit of $1,102 million. With that deficit, the trade balance for full-year 2018 registered a deficit of $8,566.4 million.
The Central Board of Statistics also released the inflation report, which showed inflation of 0.62% for December. That performance brought year-over-year inflation to 3.13%, a level at the lower part of the target corridor of the Central Bank. Such mild inflation, together with the relatively benign external environment (despite the staggering trade deficit), led the Central Bank to keep the benchmark interest rate at 6% at its monetary policy meeting in January 2019.
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