Vietnam Raises Refinancing Rate to Fight Inflation (Update2)

Feb. 18 (Bloomberg) — Vietnam’s central bank raised the refinancing rate to 11 percent, joining Asian counterparts in tightening policy to curb accelerating inflation as it increased borrowing costs for the first time since early November.

The State Bank of Vietnam raised the rate from 9 percent, effective yesterday, it said in a statement on its website. The rate was one of three that were raised on Nov. 5, when the base rate was also increased to 9 percent from 8 percent, and the discount rate was lifted to 7 percent from 6 percent. The bank didn’t mention the other two rates yesterday.

“This is a first step by the central bank to tighten monetary policy in an attempt to curb inflation,” said Luu Hai Yen, a Hanoi-based analyst at Thang Long Securities Joint-Stock Co., the country’s biggest brokerage. Before yesterday, Vietnam hadn’t raised rates this year and the increase in November was the first since 2009.

The Southeast Asian nation’s inflation has accelerated to a 23-month high, and four currency devaluations in 15 months risk spurring price gains further. Vietnam joins policy makers from China to India and Indonesia in raising rates this year as the region’s growth and rising global commodity costs boost inflationary pressures.

Stocks and bonds across Asia have declined this year amid concern that accelerating price gains will erode purchasing power and spur further tightening. The benchmark VN Index of Vietnamese stocks fell 1.2 percent to 503.92 at the 11 a.m. close, the most since Jan. 25, making it Asia’s biggest decliner.

‘Very Concerned’

“Investors are very concerned now because the hike in the refinancing rate will lead to a hike in borrowing costs and that will affect the money flow into the stock market,” Giang Trung Kien, head of research at FPT Securities Joint-Stock Co., said by phone today.

Lending rates in Vietnam were as high as 20 percent, according to a statement on the central bank’s website Feb. 2.

HAGL Joint-Stock Co., Vietnam’s second-biggest listed property developer, dropped 2.8 percent to 53,000 dong, the biggest decline since Nov. 17. FPT Corp., the country’s biggest telecommunications and software company by value, plunged 4.9 percent to 58,000 dong, the most since November 2009. The daily limit on the Ho Chi Minh City Stock Exchange, the main bourse, is 5 percent.

The International Monetary Fund has urged Vietnam to “focus more decisively” on containing price gains, and Moody’s Investors Service and Standard & Poor’s cut Vietnam’s sovereign credit ratings in December.

Symbolic Move

Banks use the refinancing rate in borrowing money from the State Bank, said Lawrence Wolfe, director of business development at DongA Securities Co. in Ho Chi Minh City. The base rate is “purely symbolic” and the fact that the central bank didn’t raise the base rate doesn’t make yesterday’s move any less significant, he said.

“This shows an intention to tighten monetary policy, but they’re going to have to raise rates even more than this,” Wolfe said. “This is a first step. They’re testing the waters, and they want to go step by step.”

Consumer prices climbed 12.17 percent in January from a year earlier. Citigroup Inc. has said the benchmark base rate should be boosted to 11 percent.

Credit Growth

The new refinancing rate “will make it more expensive and more difficult for banks to get capital from the central bank for making loans,” said Alan Pham, chief economist at VinaCapital Investment Management Ltd. “The purpose is to keep credit growth within the goal of 25 percent. This is also an attempt to keep inflation under control because less credit, less inflation.”

The State Bank of Vietnam devalued the nation’s currency by about 7 percent on Feb. 11, the most since at least 1993.

With the rate increase yesterday, “real interest rates will become less negative, thus helping to slow the rate of credit expansion, which was 27.7 percent last year,” according to a note from Australia & New Zealand Banking Group Ltd. “The hike is essential, especially after the devaluation of the dong last week that will add to inflation pressures.”

Nguyen Van Giau, the governor, and Nguyen Ngoc Bao, director at the central bank’s monetary policy department, didn’t answer calls to their cell phones by Bloomberg News yesterday.

The overnight rate in inter-bank electronic payments and the rate of loans to finance short balances in clearing transactions between the central bank and commercial banks were set at 11 percent, according to the statement.

The central bank may lower the base rate if the monthly consumer price index increases by about 1.4 percent in February from January, online newswire Vietnamplus reported Jan. 27, citing Giau.

“The chances for interest rates level to go down have become impractical,” said Kien of FPT Securities.


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Indian Bank hikes lending rate by 25 basis points

MUMBAI: State-owned lender Indian Bank today hiked lending rate for its existing customers by 25 basis points to 13.75 per cent in line with other banks.

The bank has revised its Benchmark Prime Lending Rate (BPLR) from existing rate of 13.5 per cent to 13.75 per cent, Indian Bank informed the Bombay Stock Exchange in a filing.

This will make all kind of existing loans, including housing and auto loans, expensive by at least 25 basis points.

Last week, the country’s largest lender State Bank of India raised both lending and deposit rates on select maturities by 25 basis points in response to policy rate hike announced by the Reserve Bank on January 25.

Banks have been raising interest rates following a 0.25 percentage point hike in short-term lending (repo) and borrowing (reverse repo) rates each announced by the RBI in its third quarterly review of monetary policy last month.

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Kimia Farma’s 12% Surge Helps JCI to 4th Day of Gains

Positive news from around Asia and the United States helped the Jakarta Composite Index rise for a fourth successive day on Thursday, closing up 17.6 points, or 0.5 percent, at 3,434.38.

“The local market received positive catalysts from the regional market today, while a strengthening rupiah also signaled that global funds are coming into the local market,” said Frederik Daniel Tanggela, an analyst at Sucorinvest Central Gani.

Frederik, who credited rising commodity prices and an improved producer price index announced by the US Department of Labor for the gains, said the JCI would continue rising next week.

About 3.1 billion shares worth Rp 4.4 trillion ($497 million) changed hands, with gainers outnumbering decliners 114 to 86.

Kimia Farma, a state-run pharmaceutical company, was among the most active stocks, rising 12 percent to Rp 149. Kimia Farma’s president director, Sjamsul Arifin, said the company planned a rights offer next year to raise the public’s stake to as much as 30 percent. Its net income is expected to rise from Rp 100.9 billion last year to Rp 150 billion this year.

Astra International, the nation’s biggest automotive retailer, was up 3.5 percent to Rp 51,000. Shares rose after Astra announced January domestic vehicle sales increased 5.4 percent from December to 73,849 units.

Medco Energi Internasional, Indonesia’s biggest listed oil company, gained 2.3 percent to Rp 3,300. Crude oil futures rose 0.4 percent to $85.30 per barrel in after-hours trading in New York on Wednesday.

The rupiah gained 0.1 percent to trade at 8,880 to the US dollar on Thursday, its strongest level since 2007. The currency rose on speculation the central bank will raise its benchmark rate further to dampen inflation.

“Bank Indonesia is giving strong signals that it wants to help combat inflation, and one way of doing that is by increasing the interest rate,” said Eric Alexander Sugandi, an economist at Standard Chartered. “It is also allowing the rupiah to appreciate to control imported inflation.”

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Rupiah Gains on Speculation Borrowing Costs Are Headed Higher

Indonesia’s rupiah advanced to its strongest level since 2007 on speculation the central bank will boost its policy rate further to damp inflation. Bonds rose.

Bank Indonesia raised its reference rate by 25 basis points to 6.75 percent on Feb. 4, the first increase in more than two years, after consumer prices rose the most in 21 months in January. The rupiah has strengthened 1.1 percent this year, the best performance among Asia’s 10 most-traded currencies.

“Bank Indonesia is giving strong signals to the market that it wants to help combat inflation, and one way of doing that is by increasing the interest rate,” said Eric Alexander Sugandi, a Jakarta-based economist at Standard Chartered Plc. “It is also allowing the rupiah to appreciate to control imported inflation.”

The rupiah gained 0.1 percent to 8,883 per dollar as of 4:02 p.m. in Jakarta, according to data compiled by Bloomberg. It reached 8,873 earlier, the strongest level since June 2007.

The currency may average 8,900 to 9,000 to the dollar this year, Bambang Permadi Brodjonegoro, head of fiscal policy at the Finance Ministry, said in Jakarta today.

‘Further Appreciation’

Southeast Asia’s largest economy may expand 6.5 percent in the first quarter from a year earlier, and inflation in February may accelerate 0.2 percent to 0.5 percent from the previous month, Brodjonegoro, said.

Consumer prices in Southeast Asia’s largest economy climbed 7.02 percent in January from 6.96 percent in December. The country’s gross domestic product grew 6.9 percent in the fourth quarter, the most since 2004. Indonesia’s exports rose 25.7 percent in December from a year earlier.

“There is some room for further appreciation” in the rupiah, Milan Zavadjil, the International Monetary Fund’s senior resident representative for Indonesia, wrote in an e-mail to Bloomberg News today. “We do not believe the rupiah is overvalued. This is confirmed by the strong recent performance of exports.”

Ten-year government bonds gained. The yield on the 8.25 percent note due July 2021 slipped two basis points to 8.88 percent, according to closing prices from the Inter-Dealer Market Association. A basis point is 0.01 percentage point.

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Fund Managers Still Positive About Local Market’s Promise

Top mutual fund managers remain upbeat about the industry’s prospects despite Indonesian stocks making a rough start to 2011, saying they believe it will rebound soon.

In the meantime, they suggest investors diversify their holdings with less-risky instruments, such as money-market funds, which provide stable returns amid expectations of further interest rate increases.

Michael Tjoajadi, director at Schroders Investment Management Indonesia, told the Jakarta Globe recently that he believed the stock market still had plenty of room to grow this year.

“The mutual fund industry’s assets under management can still grow around 15 percent this year. I believe the index will regain its strength, especially after the announcement of companies’ earnings. Equity-based mutual funds have always fluctuated following the trend of the index,” he said.

The Jakarta Composite Index, which soared 46 percent in 2010, has lost about 9 percent since January. Lingering inflation fears and rising interest rates around the region saw investors flee toward developed markets.

Just two months ago, the chief of the Indonesia Mutual Fund Managers Association (APRDI), Abipriyadi Riyanto, said he was confident the domestic capital market could help boost the assets managed by the mutual fund industry by 20 percent this year.

Total managed assets in the industry reached Rp 149.1 trillion ($16.7 billion) at the end of 2010, up 27.7 percent from 2009.

Of the Rp 36 trillion in mutual fund assets it managed last year, Schroders put half of it in stocks and the rest in fixed-income and money-market instruments.

Agus D. Priyambada, corporate secretary of Trimegah Sekuritas, said his firm recommended investors allocate 40 percent to 60 percent in equities, 20 percent to 40 percent in fixed-income instruments and no more than 20 percent in money markets.

Putut E. Andanawarih, a director at investment management firm First State Investments Indonesia, has a different strategy to boost assets.

“With growing risk in the stock market, investors will likely be more prone to volatility. I think now is the time for them to re-balance their portfolio,” he said.

That does not mean investors should avoid the stock market entirely, he said, but he suggested they consider spreading allocations to mutual fund products with underlying assets in short-term money market instruments, such as Bank Indonesia certificates (SBI), government bonds with maturity of less than one year and bank time-deposits.

Money-market products have great prospects this year, Putut said. The market expects Bank Indonesia to further raise its benchmark rate, which will increase the yields of SBIs and government bonds

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Indonesia’s Bumi expects 2013 coal output over 110 mln T

Feb 17 (Reuters) – Indonesia’s PT Bumi Resources , Asia’s largest thermal coal exporter, expects to produce more than 110 million tonnes in 2013, or 64 percent higher than this year’s forecast output, a company director said on Thursday.

“Expansion projects to achieve the 2013 target are already under execution,” Dileep Srivastava, a Bumi director, told Reuters. “The strategic principle we are adopting is to build for over capacity across our entire coal supply chain.”

Bumi will become a unit of Bumi Plc, to be listed in London after a $3 billion deal with Nathaniel Rothschild’s Vallar Plc in November. (Reporting by Janeman Latul; Editing by Neil Chatterjee)

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Multipolar Set to Invest $75m For Robbinz Retail Push in China

Multipolar, the holding company that owns Matahari Putra Prima, will invest as much as $75 million to open new Robbinz stores in China and to bolster existing operations, its managing director said on Monday.

“We will open five to seven new stores in China this year, and it will cost around $50 million to $60 million,” Harijono Suwarno said.

Multipolar acquired Robbinz Department Stores in August, purchasing it through subsidiary Mainvest for 345 million Hong Kong dollars ($44.3 million).

“The prospects in China are very good with its economic growth and per-capita income, and we want to seize it,” Multipolar chief financial officer Reynold Ong said, adding that the department store’s sales are expected to grow by 10 percent to 15 percent this year.

He also said total investment, including operational and capital expenditure, would come to about $75 million, with funds coming from internal cash and bank loans.

Robbinz’s per meter square performance is about $150 to $170 each per month, he said. Robbinz currently has three stores, each of which contains around 50,000 square meters.

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UPDATE 1-Indonesia-Market Factors to watch – Feb 16

JAKARTA, Feb 16 (Reuters) – Following is a list of events in Indonesia as well as news stories and press reports which may influence financial markets. PRESS DIGEST – SOUTH KOREA TO INVEST $15 BLN IN INDONESIA South Korea plans to invest a total of $15 billion in the next 3-4 years in Indonesia, including in infrastructure, manufacture, electronic goods and property, said Gita Wirjawan, head of the National Investment Coordinating Board. (Bisnis Indonesia p.2) – INDONESIA’S UNIT MERCEDES-BENZ TO SELL 6,100 CARS IN 2011 PT Mercedes-Benz Indonesia expects to sell 6,100 passenger cars in 2011, up 29 percent from 4,730 last year as steady economic growth boosts demand for premium automobiles, said Rudi Borgenheimer, the Mercedes-Benz Indonesia’s president director. (Jakarta Post, p.14) – BUKIT ASAM TO SPEND 2.7 TRLN RPH FOR COAL TERMINAL State coal miner PT Tambang Batubara Bukit Asam will spend 2.7 trillion Indonesian rupiah ($302 million to expand capacity of of its three coal terminal as part of its plan to boost production up to 50 million tonnes by the end of 2015, said Sukrisno, the company’s president director. (Kontan p.4) – INDONESIA SEES LOSING 29 TLN RPH POTENTIAL INVESTMENT ON FOREST DEAL Indonesia could lose 29 trillion rupiah of potential investment from forestry industry, palm oil and mining when the country formally signs a forest deal with the Norwegian government this year as primary and secondary peat land will be limited for those activities, said Hadi Daryanto, secretary general of the forestry ministry. (Kontan, p.20) MARKET SNAPSHOT * Indonesia’s stock index finished up 0.74 percent on Monday. The nation’s biggest lender PT Bank Mandiri up 0.9 percent, leading turnover, after the execution of its $1.3 billion rights issue while Shares in PT Bakrie and Brothers leading volume flat at 62 rupiah per share. Gowa Makasar leading gains up 25 percent and Nusantara Inti leading losses plunged 22 percent. For prices see, for news see. * Asian stocks may struggle to advance on Wednesday as U.S. and European markets eased on weaker energy and mining stocks, while a mixed bag of data did little to lift sentiment. * Market breadth weakened and a prominent investor retreated from bullish positions as a vulnerable U.S. stock market slipped off 2-1/2-year highs on Tuesday. * Brent oil fell more than 1 percent on Tuesday in volatile trading as disappointing U.S. retail sales growth and China’s battle against rising inflation boosted worries about demand from the world’s two largest energy consumers. * Malaysian palm oil futures dropped as much as 1 percent on Monday, with trading range-bound as investors booked profits ahead of eagerly anticipated export data due later this week. Malaysia and Indonesia markets closed for public holiday on Tuesday. ———————-MARKET SNAPSHOT @ 2331 GMT ———— INSTRUMENT LAST PCT CHG NET CHG S&P 500 1328.01 -0.32% -4.310 USD/JPY 83.74 -0.04% -0.030 10-YR US TSY YLD 3.6044 — 0.000 SPOT GOLD $1,372.4 -0.04% -0.550 US CRUDE $84.54 0.26% 0.220 DOW JONES 12226.64 -0.34% -41.55 ASIA ADRS 145.51 -0.51% -0.75 ————————————————————- LATEST STORIES ON: * Indonesia stocks…….. * Southeast Asian stocks.. * Asian stocks preview…. * Asian currencies…….. * U.S. stocks…………. * Oil prices………….. * Global markets………. * Malaysian crude palm oil * Indonesian palm oil….. * Global economy………. * Key Asian companies….. * Key currencies………. * Major deals of interest. * Stocks to buy or sell… IN THE NEWS, REUTERS INDONESIA (Click on Indonesia buys 400,000 T rice from Vietnam-trade Bulog aims to use domestic rice to lift stock Vopak, Chandra Asri to build LPG terminal Indonesia’s Bontang LNG output to fall pct 2011 Indonesia sees corn import over 2 mln T in 2011 Indonesia: Russia to build $3 bln nickel smelter Indonesia charges cleric over weapons plans ($1 = 8, 914 Rupiah)

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Rupiah Appreciates After Funds Boost Indonesian Stock Holdings

Indonesia’s rupiah advanced for a second day after overseas investors boosted holdings of the nation’s assets to benefit from growth in Southeast Asia’s biggest economy.

The currency has gained 1.7 percent this month as official data showed gross domestic product rose 6.9 percent in the fourth quarter, the most since 2004, and Bank Indonesia raised borrowing costs for the first time in more than two years on Feb. 4. Exchange data show global funds bought $231.7 million more local shares than they sold this month, and the government said on Feb. 11 that foreign holdings of the nation’s debt rose 2 percent from the end of January to 199 trillion rupiah ($22.4 billion).

“Foreign funds are coming in, they are expecting at least one of two more interest-rate hikes by Bank Indonesia in the first half of this year,” said Mika Martumpal, a senior market analyst at PT Bank Commonwealth in Jakarta. “The earlier increase showed that Bank Indonesia is more focused on fighting inflation.”

The rupiah gained 0.1 percent from Feb. 14 to 8,904 per dollar as of 9:04 a.m. in Jakarta, according to data compiled by Bloomberg. It has strengthened 0.8 percent this year, the most among Asia’s 10 most-traded currencies. Indonesia’s financial markets were closed for a public holiday yesterday.

Bank Indonesia raised its reference rate to 6.75 percent this month from a record-low 6.50 percent, citing price pressures. Inflation accelerated to 7.02 percent in January from 6.96 percent in December, according to official data. The central bank meets next on March 4 to review its policy rate.

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Strong Banking Sector Growth Posted in 2010

Indonesian commercial banks posted healthy 26.74 percent growth in net profit last year, central bank data showed Monday. Analysts and industry players credited the performance to low interest rates and economic expansion.

This year, despite inflationary pressures that are expected to trigger further central bank rate hikes, lenders are bullish on profit expectations, in line with growth in loan portfolios.

Data from Bank Indonesia, the central bank, showed net banking profits were a combined Rp 57.1 trillion last year, up from Rp 45.2 trillion in 2009. The central bank’s data was unaudited and net profit was calculated after tax reductions.

“I believe nation-wide commercial banks will keep on making healthy profits this year. Yes, it is true we are being haunted by inflation and a BI rate hike. When the rate increases, banks’ cost of funds also increases. But I believe profits will keep rising in line with loans,” said Kostaman Thayib, director of Bank Mega.

Despite lenders likely increasing their borrowing rates, Kostaman said that does not mean the loan volume must shrink. “The economy is growing at a healthy pace. From the risk premium side, we don’t see signs that it is going to get worst. If the private sector and consumer spending are stimulated, loans keep on growing,” he said.

Risk premium is the cost that banks charge for borrowers according to their risk. Indonesia’s economy grew at 6.1 percent last year, compared to 4.5 percent in 2009. This year, the central bank expects 6 percent to 6.5 percent growth. This should keep risk premium in check for corporations, small to medium enterprises and retail consumers.

Bank Indonesia’s data, however, showed the banking sector overall having difficulty pushing down operational expenses, which rose to Rp 302.55 trillion at the end of 2010 from Rp 258.31 trillion in 2009. Operating expenses include general and administrative expenses, personnel expenses and office maintenance expenses.

Total outstanding bank loans reached Rp 1,742.85 trillion by the end of 2010, rising 23.8 percent from the year before. The central bank expects lending to grow by 21 percent to 23 percent again this year, with a potential downside of 19 percent if inflation soars.

Darmin Nasution, the central bank’s governor, said last month that bank lending accounted for 26.1 percent of Indonesian GDP in 2010, almost unchanged from 25.7 percent in 2009. This year, he said, banks still have room to grow in the small and medium companies market, a segment where lenders are keen to seek higher loan margins.

Joseph Pangaribuan, an analyst at brokerage Samuel Sekuritas Indonesia noted that in 2010 lenders enjoyed low cost of funds due to the BI rate being at an historic low, a major factor driving profits higher. Samuel Sekuritas predicts the BI rate could go up to 7 percent, a tolerable level for bank profits. “We are not too worried that this sector would see serious trouble from inflation and higher interest rates,” he said.

In 2008, banking sector profit fell by 12.59 percent due to the global financial crisis. Profit rebounded fast in 2009. Joseph added that an agreement made in November 2009 by the country’s 14 biggest lenders to lower the time-deposit rates offered to large institutional depositors also helped banks keep their cost of funds low.

The key BI rate has been gradually lowered from a record high of 12.75 percent in April 2006 to 6.5 percent in August 2009. It stayed there through 2010, before it was raised to 6.75 percent in February due to inflation pressures and after all other central banks in Asia had raised rates

Indonesia’s largest bank by assets, Bank Mandiri, posted Rp 8.8 trillion in net profit last year, up 23.6 percent from 2009. Bank Danamon, the No. 6 bank in the country, recorded Rp 2.88 trilion in net profit in 2010, a jump of 88 percent from 2009. Bank Danamon had significant exposure to derivative transactions, which fell apart during the 2008 crisis.

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