Indonesia Macro Update 22 Dec 2022

Bank Indonesia raised its benchmark interest rate (BI7DRRR) by 25bps to 5.50% in Dec BI7DRRR) by 25bps to 5.50% in Dec 7DRRR) by 25bps to 5.50% in Dec '22, largely in '22, largely in '22, largely in-line with market line with market expectation and thus maintaining the interest rate differential with the Fed Rate at 100bps. BI's cons differential with the Fed Rate at 100bps. iderations for this softer 25bps hike are: a) Rupiah's stability over the past month driven by the USD3.80 bn increase in foreign exchange reserves; b) the decrease in Nov '22 headline and core inflation of 5.42% and 3.30% (yoy); and c) well-maintained domestic liquidity demonstrated by 14.9% and 9.8% (yoy) increase in M1 and M2 as well as the solid credit disbursement of 11.6% (yoy) in Nov '22. In addition, BI continues to pursue a policy of Rupiah stabilization going forward, in order to maintain imported inflation pressure and to maintain the attractiveness of domestic asset portfolios. This is seen from the contin stic asset portfolios. uation of several policies such as 1) intervention in the spot, DNDF and purchase-sale (operation twist) SBN in the secondary market; 2) strengthening financial structure in the country; 3) resuming the purchase of SBN in the primary market; 4) continuing special incentives for priority sectors; and 5) transparent publication of banks' base-lending rate (SBDK) as well as encouraging further efficiency in the domestic payment system. In addition, BI issued new foreign exchange instruments to encourage the transition from DHE with competitive return. This is a form of macroprudential policy in line with the increase in the foreign exchange guarantee rate by LPS of 100 bps to 1.75% from 9th Dec ’22 to 31st Jan ‘23.. BI's decision should serve as a positive catalyst for Indonesia's financial market which followed by B or Indonesia's financial market which followed by BI's commitment to maintain 's commitment to maintain liquidity in the domestic market along with incentives for certain priority sectors (KUR and green economy). In addition, market nomy). should appreciate BI's effort to encourage the absorption of foreign portfolio funds into short-term SBNs. However, with the continued expectation of global economic volatility, we still anticipate BI to continue to raise the BI7DRRR in nue to raise the BI7DRRR in the first semester of 2023, albeit with more limited hike. This is also helped by the more benign infl d hike. ation expectations for 2023, given the softer second round effects of the Sep '22 fuel price increase and the lower commodity price expectations for 2023.

Unduh