The Fed Still Hawkish, S&P 500 down -1.39%

The United States stock market, the S&P 500, closed down -1.39% throughout last week's trading. The benchmark index snapped a five-week winning streak, with sentiment hit by concerns about interest rates. Last week was particularly strong for the S&P 500 with a gain of more than 2.5% after the Federal Reserve kept interest rates on hold for the first time after ten consecutive hikes. However, this week, Jerome Powell emphasized that further interest rate increases would be needed this year to counter inflationary pressures. Powell noted that a majority of the FOMC sees two more hikes by the end of the year. Additionally, other central banks also sent hawkish signals, with the UK, Norway and Turkey all raising interest rates. 10 of the 11 S&P 500 sectors experienced declines in trading last week.

Bank Indonesia Holds Interest Rate at 5.75%

Bank Indonesia decided to maintain its benchmark interest rate at 5.75%, amidst controlled inflation and global financial market risks. Considering that inflation has returned to target, Bank Indonesia has room to adjust interest rates to support economic growth. However, the Fed's hawkish posture and slow recovery in China added to volatility in emerging market currencies. Therefore, Bank Indonesia will focus on maintaining rupiah stability, including intervention through buying/selling government bonds and optimizing DHE policies. BI made adjustments to its short-term deposit facilities for export proceeds and conventional programs, by offering lower period options, as well as increasing the frequency of DHE auctions. Bank Indonesia maintained their GDP outlook between 4.5% to 5.3% for this year, based on assumptions of strong domestic consumption. In line with their pro-growth posture, Bank Indonesia plans to maintain banking liquidity and expand incentives for the credit sector.

Banking Restructuring Program Ratified

The government has passed a new regulation 'Indonesian Government Regulation Number 34 of 2023 Concerning the Amount of Premium Portion for Banking Restructuring Program Funding' to collect additional insurance premiums from all banks for 'Banking Restructuring Program' (BRP) funds. The results from BRP insurance premium collections will be accumulated as funds or reserves that can be used if a banking restructuring program is needed to overcome systemic banking industry problems in the future. This new insurance premium will be effective starting January 2025. From the annual Banking Restructuring Program premium collection, the Government hopes to collect reserve funds of 2% of national nominal GDP in 2022 (or around IDR 392tn) over the next 30 years. Banking Restructuring Program premiums can only be invested in securities issued by the Indonesian Government, Bank Indonesia, and/or foreign countries.

Key Takeaways:

The United States stock market, the S&P 500, closed down -1.39% throughout last week's trading. Jerome Powell emphasized that further interest rate increases will be needed this year to counter inflationary pressures. Powell noted that a majority of the FOMC sees two more hikes by the end of the year.

For the domestic economy, Bank Indonesia decided to maintain its benchmark interest rate at 5.75%. Considering that inflation has returned to target, Bank Indonesia has room to adjust interest rates to support economic growth. However, the Fed's hawkish posture and slow recovery in China added to volatility in emerging market currencies. Therefore, Bank Indonesia will focus on maintaining rupiah stability, including intervention through buying/selling government bonds and optimizing DHE policies.

In other economic news, the government has passed regulations to collect additional insurance premiums from all banks for the ‘Banking Restructuring Program’ (BRP) fund. The results from BRP insurance premium collections will be accumulated as funds or reserves that can be used if a banking restructuring program is needed to overcome systemic banking industry problems in the future.

ANALYSTS CERTIFICATION

The views expressed in this research report accurately reflect the analysts’ personal views about any and all of the subject securities or issuers; and no part of the research analyst’s compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in the report.

DISCLAIMERS

This research is based on information obtained from sources believed to be reliable, but we do not make any representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. Contents in this research is intended to be used and must be used for informational purposes only. It is very important to do your own analysis before making any investment based on your own personal circumstances. You should take independent financial advice from a professional in connection with, or independently research and verify, any information that you find on our report and wish to rely upon, whether for the pur-pose of making an investment decision or otherwise. Any recommendations contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is not and should not be construed as an offer or a solicitation of an offer to purchase or subscribe or sell any securities. PT. Surya Timur Alam Raya or its affiliates may seek or will seek investment or other business relationships with entities in this report.