Macro Chart Pack: Feeling The Heat
BMI View: We have long warned of overheating pressures within Indonesia's economy and it is clear from the recent data flow that such pressures have started to boil over. The most obvious symptoms are a dwindling foreign reserve stock and rising inflationary pressures, and while we are not calling for a painful correction, we are likely to see a macro adjustment take place via further interest rate hikes and slower domestic demand momentum. We remain bearish towards the Indonesian rupiah which, despite its steady grind lower, remains significantly overvalued.
BMI has long warned of the overheating pressures percolating under the surface of Indonesia's economy. Back in September 2012, for instance, we cautioned that '...signs of overheating as a result of Bank Indonesia's easy monetary policy are beginning to emerge, a phenomenon that will begin to unwind as we move into 2013...' ( see 'Domestic Economy Resilient, But 2013 Slowdown Looms', September 12 2012). Fast forward to today and it is clear from the recent data flow that such pressures have started to boil over and are taking their toll on the country's macroeconomic health.
The two most visible pressures points are Indonesia's dwindling foreign reserve stock and rising inflationary pressures. Foreign reserves fell below the US$100bn mark in June (at US$98.1bn) for the first time in 28 months, meaning that the country's external buffer has now fallen 21.3% from its August 2011 peak. Meanwhile, headline consumer prices jumped 5.9% year-on-year (y-o-y) in June from 5.4% in the previous month, confirming the longer-term inflationary trend.
|External Buffer Is Shrinking|
|Indonesia - Foreign Reserve Stock, US$bn & % chg y-o-y|