Fixed Income Update 22 Feb 2024
KBVS WEEKLY FIXED INCOME UPDATE
Thursday, 22 February 2024
Global Economy Awaits The Fed Signals,
While Domestically, The Anticipation of Creative Destruction
The robustness of the US labor data is evidenced by the weekly Initial Jobless Claims, followed by persistently high PPI inflation (both headline and core), suggesting the possibility of an extended delay in the Fed Rate reduction. Meanwhile, economic contractions indicated by Japan and the UK have propelled an increase in the DXY over the past week.
The smooth and peaceful conduct of the domestic elections is expected to promptly reduce the wait-and-see behavior in the domestic market. The continuous shrinkage of the trade surplus for 45 consecutive months to USD2.01 bn (prev: USD3.30 bn) raises concerns about a potential current account deficit in 1Q24. BI has maintained the BI Rate at 6.00%, while vigilantly considering inflation and the Rupiah before any future rate cuts.
If creative destruction in the form of separating the Revenue and Expenditure sides of the state is implemented, with the effectiveness of State Revenue reaching 23% of GDP, it would certainly be a very positive development. Considering that by the end of 2023, Indonesia's tax ratio was only at 8.95% and State Revenue was merely 13.28% of GDP, this has been a longstanding challenge in assessing the economic assessment by various rating agencies in adjusting Indonesia's Sovereign rating.
Regards,
Fikri C Permana - KBVS Research Team