Indonesia-Philippine Growth Gap Widens as Rupiah Spurs Rate Rise

Indonesia-Philippine Growth Gap Widens as Rupiah Spurs Rate Rise

Indonesia faces pressure to add to its most aggressive monetary-tightening cycle since 2008, underscoring a widening divergence in its growth outlook with the Philippines in a reversal of fortunes for the two economies. Bank Indonesia will probably raise its deposit facility rate tomorrow a fourth time this year, according to seven of 14 economists surveyed by Bloomberg News, with the rest forecasting no change. Analysts see the key reference rate rising as high as 7.5 percent in the first quarter of 2014 after staying at 7 percent this week. The Philippines will hold its benchmark at 3.5 percent the rest of the year, surveys showed.The split in policy direction highlights the resilience of the Philippines, which won investment-grade ratings and sustained growth of above 7 percent this year while Indonesia battles slowing expansion, a record current-account deficit and the fastest inflation since 2009. The rupiah fell 11 percent this quarter, the worst performer among 24 emerging-market currencies and about seven times the peso’s decline.

“We risk seeing markets punish Bank Indonesia again and hit the rupiah” if the central bank doesn’t raise rates further, said Robert Prior-Wandesforde, a Singapore-based economist at Credit Suisse Group AG. “Indonesia’s economic woes are worsening, while for the Philippines it all looks beautiful, as it is very much in the sweet spot of the growth cycle now.”

The Philippine benchmark stock index has risen almost 5 percent this year, outperforming the 1 percent gain for the Jakarta Composite Index. (JCI)

Reserves Fall

Indonesia raised its deposit rate, also known as Fasbi, eight times and the reference rate six times in 2008 to curb inflation. The central bank unexpectedly increased the benchmark rate to 7 percent during an unscheduled policy review on Aug. 29 after leaving it unchanged on Aug. 15. It also raised the Fasbi rate by half a percentage point to 5.25 percent.

Indonesia’s foreign-exchange reserves held near the lowest in almost three years last month. The central bank has intervened to support the rupiah and policy makers extended a bilateral swap deal with the Bank of Japan valued at $12 billion.

The economy expanded 5.8 percent last quarter from a year earlier, the slowest pace in more than two years. In contrast, gross domestic product in the Philippines rose 7.5 percent from a year earlier, matching China’s pace, as President Benigno Aquino boosted spending and investment. The nation is poised to be among the world’s five fastest-growing economies in 2013 and 2014, according to Bloomberg surveys.

Indonesian annual growth averaged 5.3 percent from 2001-2010, compared with 4.8 percent for the Philippines, according to official data.

Investment Grade

Fitch Ratings and Standard and Poor’s this year awarded the Philippines its first investment-grade scores, while Moody’s Investors Service, which ranks the nation a step below, has said it is reviewing its rating for an upgrade. San Miguel Corp., Ayala Corp. and JG Summit Holdings Inc., among the nation’s biggest companies are investing in airports and railways.

Philippine inflation will stay within the central bank’s target range this year and next, allowing interest rates to be held through 2014, Governor Amando Tetangco has said. Consumer-price gains eased to 2.1 percent in August from a year earlier, the slowest pace in four years.

“Indonesia’s star has been waning,” said Gareth Leather, a London-based Asia economist at Capital Economics Ltd. “In contrast, the economic turnaround of the Philippines has been quite remarkable and along with China, it would be the fastest-growing Asian economy in the next couple of years.”

To contact the reporters on this story: Karl Lester M. Yap in Manila at kyap5@bloomberg.net; Manish Modi in New Delhi at mmodi6@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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