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Good morning,
BI Cut The Benchmark
Rate to 6.50% and the BI 7-Day (Reverse) Repo Rate at 5.25%
¨ Bank
Indonesia (BI) board of governors’ meeting decided to cut the BI rate to
6.50% on 16th June 2016. Similarly, the lending and deposit
facility rates were also cut to 7.00% and 4.50% respectively. In addition, BI
announced that the BI-7 Day (Reverse) Repo rate, which will become the
benchmark rate effective on 19 August 2016, would be cut as well to 5.25%.
The decision was made given that inflation is moderating,
while current account deficit and currency are relatively stable.
Furthermore, the BI was taking a window of opportunity to ease policy, as
expectations on the US Fed to raise interest rates are abating. BI perceives
there is a need for additional easing to stimulate domestic demand and
catalyse credit growth on both the supply and demand sides in order to
bolster future economic growth.
¨ Elsewhere, BI on 16th June 2016 said that it
will ease macroprudential policy while maintaining compliance to prudential
principles by relaxing the loan-to-value (LTV) and financing-to-value ratio
(FTV) on housing loans/financing. Furthermore, to boost banking credit, BI
will also raise the floor on the Reserve Requirement – Loan to Financing
Ratio (RR-LFR) from 78% to 80%, with the ceiling maintained at 92%. All these
policies will take effect in August 2016.
¨ Separately, the BI maintained its projected economic growth
for 2016 at a range of 5.0–5.4%. BI, however, predicts the economy to
improve in 2Q, albeit not as strong as previously predicted, on the back
of an increase in household consumption, as retail sales surge in preparation
for Eid Fitr festivity and its allowance disburse. We are still of the view
that easing inflation, recent government deregulation and BI’s monetary
easing will likely boost consumption, export, and private investment in the
later part of this year. In addition, the prices of several commodities from
Indonesia are rising, including crude palm oil (CPO), coal, rubber, and lead.
¨ On the global economic outlook, the BI acknowledged that
sluggish global economic growth and low inflation in Japan and Europe forced
the European Central Bank (ECB) and Bank of Japan (BOJ) to extend their loose
monetary policy. In addition, the Brexit could reignite pressures on global
financial markets. Meanwhile, China’s economy was again under threat as
investment slows, along with production and consumption. Moreover, the US economic
growth is not yet solid. Consequently, the Fed will likely act cautiously in
adjusting the Fed Fund Rate (FFR).
¨ Indonesian financial system remained stable, underpinned by a
resilient banking system and relatively sound financial markets. In April 2016,
the Capital Adequacy Ratio (CAR) of banks remained high at 21.7%, which is
above the minimum threshold of 8%. At the same time, non-performing loans
(NPL) remained relatively stable at 2.9% (gross) or 1.5% (net). Credit growth
was slower at 8.0% y-o-y in April, down from +8.7% in previous month, while
deposit growth decelerated to 6.2% y-o-y during the month. Moreover, the
looser monetary policy has transmitted to lower deposit and lending rates
even though transmissions through credit channel have yet to reach an optimum
level.
¨ Going forward, we believe inflation will likely ease in 2016 due
to lower fuel prices and soft domestic demand. In addition, the current
account deficit in 2016 will likely be maintained at a manageable level.
Furthermore, the deluge of foreign capital inflows and lower foreign exchange
demand in the domestic market will likely continue to provide a support to
the rupiah, as expectations on the US raising interest rates abate. This will
likely provide room for the BI to loosen its monetary policy. Nevertheless, as the BI will
soon replace its policy rate with the 7-Day (Reverse) Repo rate in August,
which currently stand at of 5.25%, and the inflation will reach its peak next
month, we foresee the BI to maintain the BI rate at 6.5% in July, the last month of
transition period. Further out, we expect another cut in 7-Day (Reverse) Repo
rate by 25bps if the economic growth in 2Q remains soft as BI still mentioned
a need for additional easing to stimulate growth. (Rizki Fajar)
Link
to Daily report: Indonesia Morning Cuppa 170616
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Sector News Flash:
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Banks: 25bps cut in
policy rate and relaxation policy on LTV (OVERWEIGHT)
Flash highlights on
latest relaxation on BI policies:
¨ We
maintain our OVERWEIGHT call on banking sector with Bank Central Asia (BCA)
(BBCA IJ, BUY, TP: IDR15,700)(21% upside) as our top pick in big cap universe
due to its healthy balance sheet position, decent assets quality and less
government intervention risk. Bank Tabungan Negara (BTN) (BBTN IJ, BUY, TP:
IDR2,150) (31% upside) is our top pick in small cap due to its strong focus
in subsidised mortgage market, assets quality improvement and expanding ROAE
(15.1%/15.6% for 2016F/2017F respectively).
¨ We
expect muted impact from 25bps cut in BI rate to 6.5% given that BI would
shifted its policy rate to 7-days reverse repo starting August. Yet, we view
that the lending rate would gradually down in September at the soonest as the
banks would reprice their TD rate in the following month post implementation
on new policy rate.
¨ New
lower bound of LFR of 80% (previously 78%) would not have significant impact
on our banks universe given that only BCA had LFR at 79% as end-March 2016.
Yet, we expect that BCA would not mind to put additional reserve requirement
on below lower bound of LFR given its priority on healthly loan book.
¨ By
easing the LTV regulation, it would provide stronger support for GDP growth
due to soft loan demand (April’s loan growth of 8% YoY vs March’s that of
8.7% YoY) (Figure 1). We however anticipate loan demand would pick up in 2H16
following the normal pattern of government spending. (Eka Savitri)
Property - BI
rate cut and allowing for mortgage purchasing for second property that is off
plan or under construction
¨ More reasons to OVERWEIGHT
on property sector.
¨ Starting today, BI is now
allowing homeowners to purchase a second property, that is “off-plan” or
under construction using mortgages.
¨ The mechanism of mortgage
disbursement would be on stages according to the construction progress
(similar to mortgages on first homes).
¨ Note that property
purchases using mortgage is declining since BI introduced cooling measure for
property since 2013.
¨ In addition, BI rate also
slashed for the fourth time this year to 6.5%, signaling easing monetary
policy which would lead to bank cutting deposit and lending rates.
¨ We are positive on the
news as this should further accelerate the recovery of demand for property,
which have been seen over the past couple of months. Note that YTD marketing
sales has achieve about 26% of FY16 presales target from RHB property
universe or equivalent to IDR7.5trn.
¨ Next catalyst would be the
passing of tax amnesty bill, which everyone believe the bill will passed by
end of june and start rolling the program in July.
¨ Our top picks still
Ciputra Development (CTRA IJ, BUY, TP 1,540) and Bumi Serpong Damai (BSDE IJ,
BUY, TP 2,540) (Lydia Suwandi)
Transportation - Odd-Even
License Plate Regulation Is Coming, Positive For Taxi Riderships
According to the
online news from detik.com – The City Administration in cooperation
with the Jakarta Police is deliberating an odd-even license plate
regulation following the revocation of the three in one traffic policy. The
City Administration is planning to try for one month the odd-even
regulation after the Lebaran season. We view that this regulation could give
a positive impact to the transportation sector in Indonesia especially taxi
business. We maintain our BUY call on Blue Bird as we think that this
regulation could improved the utilisation rates and average daily revenue.
What is our view?
Obviously, the try
out of odd-even license plate could give a positive signal to the
transportation sector in Indonesia, esp. for Blue Bird. We view that this
regulation could improved the utuilisation rates and increased the average
daily revenue for Blue Bird in one month period. The reverse impact could be
felt by the online ride applications, like Uber and Grab - as their fleets
are considered as a normal license plate that has to follow the odd-even
regulation as well. (David
Hartono)
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Media Highlights:
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Economics
House of Representatives agreed to 8% cut
in energy subsidies
BI estimates economic growth lower than 5%
in Q2
Corporates
BTN credit grow by 18.5% as of May
Eagle High Plantations aims 6% growth for
its CPO production
PP Properti bonds demand reached IDR2.3trn
Pejagan-Pemalang Section I-II toll road
starting to operate
PLN took over Jawa 5 power plant
Best regards,
Helmy Kristanto
Director
Head of Indonesia Research
PT. RHB Securities Indonesia |
