Indonesia Macro Update - BI Rate Update 22 May 2024
KBVS MACRO UPDATE
Wednesday, 22 May 2024
BI7DRRR Maintained at 6.25% : Focus on Rupiah Stabilization
After Bank Indonesia (BI) unexpectedly raised the BI Rate by 25 bps during the RDG-BI on 24 Apr, it has now decided to maintain the BI Rate at 6.25% (Cons: 6.25%, KBVS: 6.25%, Prev: 6.25%). This decision aligns with BI's pro-stability monetary policies, serving as a preventive and forward-looking strategy.
BI has demonstrated the optimization of monetary instruments, including SRBI and SBN, which have recorded an inflow of USD4.2 bn mtd (as of 20 May). Meanwhile, in this meeting, BI's decision also follows a reduction in geopolitical risks and relatively favorable domestic economic conditions, leading BI to anticipate an improvement in the current account for 2Q24.
In alignment with BI's outlook, we also view that the trade surplus, current account, and Balance of Payments are expected to continue supporting Rupiah stability, alongside the effectiveness of pro-stability monetary policies. Current economic growth for 2Q24 remains positive, as evidenced by the rising number of positive indicators in household consumption and investment, such as the Consumer Price Index, Retail Sales Index, and Manufacturing PMI. Simultaneously, inflation risks are seen to be declining as weather anomalies subside. Additionally, with dovish sentiment from the Fed and easing global geopolitical tensions, we do not anticipate any BI Rate hikes throughout 2024. We expect the BI Rate to decrease once the Fed Rate begins to drop, which we estimate will occur in 3Q24.
Regards,
Fikri C Permana - KBVS Research Team