Deutsche Strategy Alert - Bank Indonesia Conf Call Summary

Deputy Governor of Bank Indonesia, Pak Budi Mulya, hosted a conf call; mostly focussed on inflation and capital inflows. On the whole, economic activity grew stronger; supported by prudent fiscal and monetary policy.

GDP growth could be at the high end of 6.0-6.3% for 2010 and he expects it to reach 6.3-6.5% in 2011. External trade is sound, BOP increase on current and capital account surplus; FX reserve US$86.6bn in Sept.

Inflation has been creeping up, mainly from volatile food prices, but BI still focuses alot on headline inflation. 2010 inflation may exceed its 5% +/-1% range slightly, hence BI recent quantitative measure (SRR up from 5 to 8%). But this should revert to 5% +/-1 % range in 2011.

Loan growth increased by 21.2% yoy in Sept. BI also share our view that as much of this growth can also be attributed to capex lending (+31% yoy). This shows that supply side expansion is responding to rising demand; hence strong loan growth isn't an immediate concern. Also, whilst loan growth had outstripped deposit (c. 17-18%), liquidity is sufficient.

BI will continue to support the policy of Rupiah appreciation. Indeed as most of exports are primary products as to manufactured products, a stronger Rupiah isn't an immediate threat to export competitiveness.

External inflow is a challenge for monetary policy esp in the context of sterilization. Offshore SBI holdings actually are higher than the level before implementation of the 1-mth holding period; now at Rp64.7tr. Still, BI doesn't think the inflow is too distributive; perhaps judging from the characteristic of the longer-dated holder.