Central banks turn less hawkish on deteriorating global economic condition - Mandiri

Market review
 Overall market was still bearish, regional stock market declined affected by weakening global demand and Euro-zone debt crisis fears. The rupiah weakened 0.7% to Rp8,578/US$ while the JCI continued to show its resilience, up by 4.1% to 3,999.

Global economic update
 Fears of global economic slowdown triggered the central bank across the globe to shift to more dovish monetary policy. Brazil took an advance step by cutting policy rate; most other central banks were on hold.

Domestic economic update
 Headline inflation rose to 4.8% yoy, while core inflation exceeded central bank comfortable level at 5.2% yoy in Aug10. However, we think the spike in the core price is likely to be temporary given the seasonal factors and recent surge in gold prices.
 BI rate stays at 6.75% but the central bank widened its lower interest rate bound corridor to BI rate minus 150bps from previously BI rate minus 100bps, to stimulate interbank transaction.
 BI was reported to require exporters and debtor to repatriate foreign exchange proceeds, in order to increase supply of foreign exchanges. The impact on the rupiah is likely will be neutral, as they will not be required to convert the proceeds into the rupiah.