Domestic Consumption Predicted To Improve Driven Controlling Inflation

Public consumption (Photo: Antara)

JAKARTA - PT Mirae Asset Sekuritas Indonesia projects that Indonesia's domestic consumption will improve, driven by improved purchasing power in line with controlled inflation.

Chief Economist & Head of Research Mirae Asset Rully Arya Wisnubroto said that with stable inflation, the space for lower interest rates is quite open and there are several sectors that benefit, namely banking, consumer goods, the pharmaceutical industry, and telecommunications.

"Success in controlling inflation has a positive impact on people's purchasing power, which is reflected in the stable and improving Consumer Confidence Index (IKK) to 124.4 in August," Rully said in a statement, Thursday, October 17.

Rully added, the increase in the retail sales index which grew 5.8 percent (yoy) in the same month also strengthened hopes for the sustainability of consumption trends.

According to Rully, monetary policy began to loosen in September, which was marked by a 25 bps BI rate reduction. However, BI still sees the risk of market volatility so that this month's RDG BI decided to detain the BI rate.

Rully said that assuming that the Rupiah would strengthen in the medium term, there would still be room for further interest rates to decrease.

With lower interest rates, Rully said loan costs would also drop, spur consumer and investment spending. The momentum for improving the domestic economy and accommodative monetary policy is believed to be able to face challenges from global macroeconomic factors.

"In this condition, investors tend to switch to safe haven assets to maintain their portfolio. However, we are optimistic that the Indonesian capital market will be able to maintain stability even in the midst of global challenges," said Rully.

In addition, Rully also emphasized that market views in the future will be greatly influenced by interest rate policies and global economic growth. The decline in interest rates in the country provides space for the capital market to strengthen further.

However, Rully reminded that the Fed's interest rate policy will affect the dynamics of global markets and Indonesia.

"The policy of global interest rates and economic growth will be a key factor for Indonesia's capital market prospects. With controlled inflation, and of course accompanied by a stable exchange rate, so that the space for lowering BI interest rates is more open, we are optimistic about the economic fundamentals and also the Indonesian capital market", he said.