External and Internal Driven Volatility
In concert with other emerging-market countries, the Indonesian economy underwent a bit of volatility after the election of Donald Trump as the new President of the United States. However, in the Indonesian context, volatility was also influenced by internal politics after the November 4, 2016 demonstration. The combination of both drove the markets, leaving the exchange rate weaker and the stock market lower.
The surprise victory of Donald Trump in the US Presidential election shocked every corner of the world. Many statements made by Trump during his campaign, such as the unwinding of existing trade agreements, as well as other protectionist sentiments, caused the world to prepare for the worst. However, his fiscal plan, to cut income taxes as well as boost infrastructure development, prompted the market to react to the possibility of increasing bond yields in the US, which led to massive capital outflows from other countries back to the US market. That event led to the weakening of exchange rates against the dollar, including the Indonesian exchange rate.
My own view on this is slightly different. I believe that Donald Trump has been clever in using such rhetoric in his campaign to win the hearts of the majority of the people. However, after winning the election, he let Mike Pence lead the transition team as well as prepare a strong team for his Cabinet. With that effort, there is a strong probability that he will back away from his campaign statements and become more rational in preparing policy in the upcoming term.
In the midst of this situation, the Central Board of Statistics released the national accounts data, which revealed that the economy in Q3 was softer than expected. At the same time, the Central Bank also released the Q3 balance of payments report, which showed a smaller deficit in the current account. The lower GDP growth in Q3 was primarily driven by the lower amount of government injections because of the budget cuts made by the new Finance Minister.
The Central Board of Statistics also released the report on the October 2016 trade balance, which registered another surplus for the month. That surplus was primarily due to higher export performance while imports stagnated.
In addition, the Central Board of Statistics released the inflation report, which showed relatively mild inflation of 0.14% for October 2016. With that performance, year-over-year inflation stood at 3.31%. Such benign inflation led the Central Bank to keep the benchmark interest rate constant at 4.75%.
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