Recent Crisis

Wall Street is shaking. After Fannie Mae and Freddie Mac, On September 17, 2008 Lehman Brothers has filed Chapter 11. Bank of America, the one who wanted to buy Lehman Bro. has switched their interest and buy Merril Lynch instead. An investment bank with 158 years of history went bankcrupt because of subprime case. And the crisis keep marching. AIG is also in trouble. And because of its possible systemic cause, the US government bail it out for $85 billion. Much bigger than Indonesian forex reserves. On 19th of Sept 2008, The Fed and US Treasury has proposed a comprehensive way out of this crisis with the cost of about $700 billion to buy all assets that is necessary, incl. mortgages and mortgages linked securities with high risk and problems. Because of this, Dow JOnes bounce back from 10,000 level to 11,000 level on Friday, 19 Sept 08. On the other hand, this $700 billion bail out will cause US Deficit to increase to $11.3 trilion, and this issue has caused Dow Jones falling back 300 points... Investors are flying to quality, and T-Bills has been over demand, and the yield has gone negative... amazing...

Itf vs Exchange Rate continue

Lets continue the discussion on where is exchange rate in an itf arrangement. Just read a couple of papers on itf and possible use of exchange rate in the framework. In Israel, one research mention that the two have different characteristic, and the application of both will only bring conflicts. in mexico, itf will only work if the er. regime is free floated. and read another paper that in uk experience, er. will only significantly effecting the inflation only through output gap. meanwhile, direct pass-through is weak.

As I mentioned in my past blog, that's not the case within Indonesia. but on the second thought, is it? the amount of effort of the central bank in limiting the inflation is huge this year, but still the inf. rate is predicted tobe 2 digits. it simply means that er. has a weak impact on inf. and simply because indonesian inflation is majority caused, in my opinion, by cost push! oil price man! what else ...

lets leave it that way...

What A Week!!

Alhamdulillah.. I have so much gifts from God, so that I have been given so much "tasks" By Thee this week...
At first, My nephew was hospitalized due to typus. Then my second nephew, then My son, and it doesn't stop because then same thing happen to my daughter. Then my nephew is back to hospital because of virus. And Now my second daughter is having a fever because of me... my oh my... Astagfirullahal adziim if I ever made mistake to you, God, and Alhamdulillah that you have given us a warning to keep praying....

Just an opinion

wew.. another day on the train n its starting to rain again.

lets talk about indirect pass-through of exchange rate to inflation. According to theory on inflation targeting framework, exchange rate is "ignored" by central banks in determining the inflation target. well, that is not what happen in indonesia. exchange rate has somewhat influence on inflation targeting. how significant is the influence? I don't know, but governer's board keep mentioning level of rupiah in the newspaper. in my opinion, the effect is quite strong, since indonesian imports is almost as high as its Non oil n gas export. And I Believe, the higher the imports, the higher significancy of er to influence inflation. that's all for now folks...

on train

On train.
I just at a glance about predicting volatility on fx market. Don't quiet understand, but they compare implied vols using black scholes model with future vols for the remaining life of the options using isd. One of the conclussions is that its almost similar. What this means to me? Vols can be predicted. It simply that.

But can that be applied for rupiah? Rupiah's vols mainly caused By sentiments and fundamentals. And according to some research, offshore players play some important roles on determining rupiah level.

blog again later.

aaah.. Bandung

It's not that I'm sentimental, but whenever I heard a slow and easy listening music, such as Roxann by Jay Graydon, or Lea by Toto, or what not, I always remember Bandung, the city where I was born, the city I took my bachelor, the city I love. The mahagony trees stands between the streets, Aceh Street, Dipatiukur, Diponegoro, Cisangkuy, Gedung Sate, Cimandiri, aah... I miss Bandung so much. It's like... home.. that's exactly the word! H O M E...
I remembered walking home to jalan Aceh after school at dipatiukur and listen to these songs... the music, the atmosphere, the breeze, everything struck me.. and will always have a place in my heart.. bandung...

Always remember the good old days where Mas Bambang and Eyang aceh are still around, having lebaran there. For me, the atmosphere is still and will always be there. Still remember how I play tennis with Mas Bambang in front of the house at siliwangi, went to ITB to play tennis with him, or buy shoes for himself. hmmm.. it's been almost 20 years and the memory is still there...

FX Swaps @ Aussie

Just attend a workshop on Portfolio Management by RBA in my office. They touch a little bit on FX swaps as the liquidity management tools for domestic market operation. They said that there will be no impact on the FX market, and only interest rate market will be effected. Really??
Well, one thing is true that FX swap is a money market instrument, not a fx market instrument. You buy (in this case you borrow) a particular currency, in an exchange of selling (lending) other currency, and at the time of maturity, you will get the same amount, at the same level.
They said that $10 billion worth of FX Swap will not move the FX market, and they've done that. Wow.. how deep is the market? I have to check it. But What I am sure is that won't be the case with Indonesia. Buying (borrowing) or selling (lending) rupiah means increasing supply and demand, and increasing turnover. With $3 billion per day worth of FX transaction in Indonesia, I think FX Swap will certainly move the market.
Will come back to you on that...