Indonesia Macro Update 17 Mar 2023

The BI7DRRR remains unchanged at 5.75% in Mar '23 RDG, in line with KBVS and consensus expectations. This is supported by Indonesia's strong macroeconomic fundamentals, notably Feb '23 inflation at 5.5% yoy, the Rupiah stabilising at an average of IDR15,129/USD during Feb '23 and a fiscal surplus of IDR131.8 tn up to 28 Feb '23. Furthermore, at this RDG session, the BI also implied that the implementation of FX (Valas) DHE has not been optimal pending an amendment to the presidential decree (PP No.1 of 2019), so that the USD5.48 bn surplus trade balance in Feb '23 only drove a slight increase in foreign exchange reserves of USD0.91bn. It is assured that the negative contagion effect of the collapse risk of some banks in US and EU will not have a direct effect on Indonesia. However, the stabilization of the Rupiah and yield of SUN through triple interventions and operation twist will be strengthened further to reduce sentiment risk and herding behavior in the Indonesian financial market. This is due to the difference in the business model of Indonesian banking where in Jan '23, strong domestic banking capitalization with CAR of 25.88%, solid credit risk with NPL at 2.59% (gross), and good liquidity condition with AL/NCD 129.64% and AL/DPK (or TPF) 29.13%. The stability cushion for the Rupiah and domestic portfolio assets are strengthened by adding the scope of LCT usage in Thailand, Malaysia, Japan and China as well as pushing for additional cooperation with two new partner countries, South Korea and India in the near future. In addition, forward looking is being carried out by BI related to the cyclical Ramadan and Iedul Fitri through the Semarak Rupiah Ramadan and Berkah Idulfitri (SERAMBI) 2023 program which in line with the expectation of IDR195 tn increase in demand for cash money. In addition, coordination between TPIP and TPID will be further strengthened, in line with the expectation of increased inflation due to increased seasonal demand for products/services. Going forward, we are of the view that the BI still opens up room for BI7DRRR adjustment, in line with the potential volatility and the expectation of the terminal Fed Rate of 5.25% to 5.50%. On the other hand, we also see that the BI could pivot the BI7DRRR by the end of 3Q23, ceteris paribus, if the global volatility smoothen and the base effect of subsidized fuel in Sep ‘22 has been minimal.

Unduh