Weekly Notes :
The widespread of SARS-CoV-2 Delta variant has threatened the world economy, Indonesia is no exception. Surging infection cases associated with variant of concern (VOC) has pushed a stricter domestic public health intervention. BI keeps its accommodative stance meanwhile from fiscal side another additional budget is allocated to healthcare and social aid to limit the viral infection impact to the economy as well as maintaining recovery momentum.
The Variant of Concern (VOC) : Delta Virus
Like any other of virus such as influenza, SARS-CoV-2 that cause Covid-19 has mutated into several variant. One of the recent threat comes from the delta variant that was firstly found in India October last year. This variant is also found in Indonesia and associated with the second wave outbreak. Although recent cases was recorded a drop, we are still concern about the lower testing performed that might lead to many unreported cases.
Easy Monetary Policy Remains in Place
As we have expected, domestic central bank kept BI 7 Day Reverse Repo Rate at 3.5% or the lowest level in history. The focus of monetary policy is to maintain rupiah stability as well as fostering economic growth. Elsewhere like in U.S. and Europe, the central banks easy policy is still in place although persistent and higher inflation than what had central bank expected in U.S. has opened the discussion for the Fed tapering off. However one that should be aware of is the risk of uncertainties still haunt the global economy.
Additional PEN Budget
In response to the implementation of Emergency Public Activity Restriction (PPKM Darurat) that last nearly a month in July, government increase economic recovery program (PEN) budget from IDR699.43 tn to IDR 744.75 tn. The budget increase focuses on healthcare and social assistance. Government has stated to finance the additional spending budget refocusing and reallocation is needed. Therefore government financing needs through bond issuance could be limited in order to maintain fiscal balance under what has been set and to limit government debt from rising that could likely to weaken sovereign credit metrics. In addition, government front loading financing strategy in the 1H21 we believe will support fiscal outlook amid rising the possibility of monetary policy normalization. We expect 10 year Indo GB yield would likely to move within the range of 6.3-6.5% in 3Q21 on the back of global low yield environment and government effort to maintain prudent fiscal policy.
Challenges to Chase the Dream
Accommodative macro policy approach will still be the key theme for 2021. However challenges to support the growth are coming from limited loan growth & declines in loan interest rate as well as slow regional budget realization.
The Variant of Concern : Delta Virus
SARS-CoV-2 is a highly mutating virus. WHO now classify the variants found into two separate groups namely variants of concern (VOC) and variants of interest (VOI). The first group has been found to have an altered virus properties that cause increase in transmissibility and virulence decreasing effectiveness of public health and social measures or available diagnostics, vaccines and therapeutics.
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