Indonesia-Philippine Growth Gap Widens as Banks Meet: Economy

Photographer: Julian Abram Wainwright/Bloomberg

Morning commuters walk along Ayala Avenue in the financial district of Manila. Close

Morning commuters walk along Ayala Avenue in the financial district of Manila.

Close
Open
Photographer: Julian Abram Wainwright/Bloomberg

Morning commuters walk along Ayala Avenue in the financial district of Manila.

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.”

Photographer: Dimas Ardian/Bloomberg

High rise residential and commercial buildings tower over a construction site in Jakarta. Close

High rise residential and commercial buildings tower over a construction site in Jakarta.

Close
Open
Photographer: Dimas Ardian/Bloomberg

High rise residential and commercial buildings tower over a construction site in Jakarta.

The Philippine benchmark stock index has risen almost 7 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 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 sold $1.5 billion of dollar-denominated Islamic bonds yesterday at the highest yield since 2009 as it seeks to bolster its foreign-exchange reserves to support the rupiah. Reserves held near the lowest in almost three years last month, prompting policy makers to also extend a bilateral swap deal with the Bank of Japan valued at $12 billion.

The Indonesian 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 Philippines 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.

No Urgency

Bangko Sentral ng Pilipinas sees no urgency to change its policy stance as inflation is forecast to stay within the 3 percent-to-5 percent target this year and next, Governor Amando Tetangco said today. Consumer-price gains eased to 2.1 percent in August from a year earlier, the slowest pace in four years.

“At this point in time, subject to the discussions tomorrow, there seems to be no urgency to modify or alter the stance of monetary policy,” Tetangco told reporters in Kuala Lumpur. “The inflation outlook remains benign.”

Elsewhere today, Australian consumer confidence rose to the highest level since December 2010, a Westpac Banking Corp. and Melbourne Institute survey showed. In South Korea, the jobless rate fell to 3.1 percent in August from 3.2 percent in July.

Germany, Portugal and Russia are scheduled to report inflation data today. Inventories at U.S. wholesalers probably rose in July from a month earlier, a Bloomberg survey showed.

Investment Grade

Bank of Korea and New Zealand will probably hold their benchmark rates tomorrow, according to all economists surveyed by Bloomberg News.

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.

“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

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.