Indonesia Macro Update - BI Rate Update 24 Apr 2024
KBVS MACRO UPDATE
Wednesday, 24 April 2024
BI-Rate Increase 25 bps
The 25 bps increase in the BI Rate to 6.25% (Cons: 6.00%, KBVS: 6.00%, Prev: 6.00%) as a pro-stability measure is viewed as a response to significant pressures on the Rupiah. We also see this as an encouragement to boost foreign investor appetite amidst much attractive USD LIBOR rates compared to the results of BI's DHE FX Term Deposit auction. Nevertheless, in this BI RDG, we still observe a pro-growth stance undertaken by BI through the expansion of the Macroprudential Liquidity Incentive Policy coverage. We anticipate this to stimulate investment through further banking credit growth. Additionally, the push for the BI Rate hike is also seen as a preventive measure to manage inflation.
Looking ahead, we anticipate this BI-Rate hike to soon have a positive impact in making domestic instruments' yields more attractive, especially in USD basis, attracting capital inflows into the country, and driving Rupiah appreciation back below IDR16,000 per USD. Yet, at the same time, if Rupiah stability can be achieved, we expect the BI Rate to return to 5.75% by the end of 2024.
Regards,
Fikri C Permana - KBVS Research Team