Indonesia Macro Update - BI Rate Update 22 Aug 2024
KBVS MACRO UPDATE
Thursday, 22 August 2024
BI Playing Safe; Awaiting Fed Rate Cuts
As anticipated, Bank Indonesia (BI) has decided to maintain the BI rate at 6.25%, alongside the Deposit Facility rate at 6.50% and the Lending Facility rate at 7.00%, as part of its pro-stability measures, particularly to sustain the stability of the Rupiah exchange rate. However, we view this decision as BI's anticipation of weakening Rupiah fundamentals and the risk of capital sudden reversal, following the release of a) Indonesia's trade surplus for Jul ‘24*, alongside concerns over b) the current account deficit trend.
Nonetheless, BI continues to implement accommodative macroprudential policies as part of its pro-growth strategy. Furthermore, during this RDG, BI forecasts economic growth in 2024 to be within the range of 4.7%-5.5% YoY, primarily driven by: a) Increased household consumption demand; b) The potential rise in government spending; c) Rising private investment; and d) Expectations of a surplus in the capital and financial account balance. We consider this forecast realistic, with our projection supported by two 25 bps Fed Rate cuts and two 25 bps BI rate cuts by the end of 2024, which could bring economic growth to 5.0% YoY.
Regards,
Fikri C Permana - KBVS Research