Mandiri Sekuritas Weekly Economic Research: Foreign selling continues, but easing inflation will lessen pressure

Market review
§         Rupiah weaken slightly by 0.1% to Rp9,063/US$, as foreign capital outflow slowed last week.
§         JCI slid 5.31% wow to 3,380, deeper than 2nd week correction of 1.7% wow, which we think was exaggerated by investors margin call.

Global economic update
§         China GDP grew by 9.8% in 4Q10 faster than 9.6% yoy in the previous quarter. Strong economic growth will trigger further monetary policy tightening.
§         Brazil increased its benchmark rate by 50bps to 11.25% as the response to accelerating inflation.

Domestic  economic update
§         Inflation may ease to 0.57% mom or 6.67% yoy in Jan11, consequently the central bank may keep the rate unchanged at next month BI governor board meeting.  We believe easing inflation would lessen selling pressure on the rupiah asset.
§         Indonesia rating was upgraded by Moody’s to one-notch below in investment grade.  We believe Indonesia is on track to gain investment grade in 2011, which likely to be supportive for economic growth by encouraging inve stment.