ING forecast of BI policy rate
Up by 25 basis points
Bank Indonesia to tighten policy ... again
Bank Indonesia’s monetary policy meeting is the key highlight of the week ahead.
Financial stability will be the main focus of the meeting as an escalation of global trade tensions keep domestic financial assets and the rupiah (IDR) under a weakening pressure. Following its Philippine counterpart, BI moved to tighten policy in May and raised interest rates by a total 50bp, two 25bp moves taking the main policy rate to 4.75%. Alas, the hikes did little to stem the currency weakness in both countries. Philippine's central bank raised rates by another 25bp this week, and we expect Bank Indonesia to follow suit next week.
On a positive note, however, Indonesia’s trade data for May due next week is likely to show a swing in the trade balance to surplus from a deficit. A swing to about $1bn surplus in May from $1.6bn deficit in the previous month is what we anticipate, should bring some life into the currency.
China manufacturing PMI
Trade tension weighs on China’s manufacturing
The soft data on China manufacturing PMI for June may not capture the impact of trade war just yet. At least that’s what appears from our house forecast of a rise in PMI to 52.3 in June from 51.9 in May. However, we aren’t ruling out a downside risk.
The manufacturing PMI has been bouncing around 51 over the past two years, the level associated with about 6% year on year industrial production growth. Any dent in trading from tariffs will also dent manufacturing.
The good news is that China has started pre-emptive measures to cushion potential trade war impact.
So far so good, exports still supporting manufacturing elsewhere
The industrial production releases for May from Korea, Singapore, Taiwan, and Thailand should benefit from firmer exports from these countries. Apart from Thailand, the growth of exports from other economies reporting industrial production data accelerated in May, led by firmer electronics exports.
Industrial production growth closely tracks real GDP growth in most Asian economies, and the combined April-May data will offer a good insight into GDP growth in the current quarter.