Investment Grade from S&P
The long awaited ratings upgrade from S&P for Indonesia was finally announced on May 19, 2017. The Indonesian stock market was cheered by the announcement and pushed the index to a greater than 3% spike during the intraday session, gaining 2.59% that day to reach 5,791.9. This announcement was made more than five years from the date in December 2011 when Fitch granted investment grade to Indonesia, while Moody’s lifted its rating for Indonesia to investment grade in January 2012.
This ratings upgrade will broaden investors' access to the Indonesian market, especially for conservative investors who require an investment grade rating for their purchases. It might be predicted that more Japanese investors will increase their portfolios of Indonesian assets after the ratings upgrade.
The rating announcement was preceded by announcement that the Indonesian economy reported slightly over 5% growth in Q1 2017 and also ran a relatively low current account deficit during the same period. The Central Board of Statistics announced economic growth of 5.02% year over year, especially supported by investment activity and exports, while consumption grew more slowly during the period. At the same time, the current account deficit hit 1% of GDP in Q1 2017, slightly higher than the previous quarter but significantly lower than the same period of the previous year.
The quarterly reports on the economy and the balance of payments were corroborated by the Central Board of Statistics' report on the trade balance for April 2017, which once again produced a significant surplus. Exports reached $13,166.6 million, slightly lower than the previous month but up by 12.63% year over year. Similarly, imports in April 2017 rose 10.31% year over year to reach $11,928.3 million, even though they were lower than the previous month. Apparently, import activity due to the Muslim festive days peaked in March 2017. The trade surplus for April reached $1,238.3 million.
The Central Board of Statistics also released the Inflation Report, which showed relatively mild inflation in April 2017, at 0.09%. With that performance, year-over-year inflation stood at 4.17%. That level of inflation was considered low because the month of April this year was just two months prior to the Muslim festive days, which in the past always displayed a spike in prices. This benign inflation led the Central Bank to keep the benchmark interest rate constant at 4.75%.
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