Indonesia Macro Update - BI7DRR 25 May 2023

In line with our expectation, the Bi7DRRR rate remained at 5.75% (Cons: 5.75%, KBVS: 5.75%, Prev: 5.75%) while BI also %) maintaining Deposit Facility rate at 5.00% and the Lending Facility rate at 6.50%. BI believes that these stances will help drive core and headline inflation back to the target range of 3.0±1% in 3Q23. As a result, the focus of monetary policy can be directed towards strengthening the stabilization of Rupiah to tame imported inflation and mitigate the impact of potential financial market uncertainties, in addition to continuing loose liquidity and macroprudential policies. On this occasion, BI also continues several monetar BI also continues several monetary BI also continues several monetary operations, such y operations, such as triple intervention (interventi as triple intervention (interventions in the forei ons in the foreign exchange gn exchange market through spot, forward market through spot, forward , forwardand DNDF), twist operations, transparent SBDK, the and DNDF), twist operations, transparent SBDK, theexpansion of the QRIS, the TP2DD program, and expansion of the QRIS, the TP2DD program, and strengthening international cooperation. We see the strengthening international cooperation se measures as BI's effort to support the economy, allowing loose liquidity and a favorable economic environment to contribute positively to credit/financing growth and financial system stability, as well as driving the performance of the digital economy and finance towards a secure, smooth, flexible, and efficient financial system. BI predicts global economic growth will reach 2.7% (YoY) in 2023, driven by easing inflation despite o (YoY) in 2023, ngoing uncertainties in the global financial market, particularly regarding the stability of the financial system and government debt ceiling debates in the US. Meanwhile, BI also forecasts Indonesia's economic g BI also forecasts Indonesia's economic growth to ra rowth to range between 4.5% and 5.3% (YoY) in 2023 between 4.5% and 5.3% (YoY) in 2023 between 4.5% and 5.3% (YoY) in 2023, which is expected to be further supported by improved intermediation and banking resilience, maintained inflation, and attractive domestic financial asset yields.. We are of the view that the continued stability of the Rupiah below IDR15,000 per USD since 31 Mar '23, along with a net foreign , along with a net foreign inflow of IDR32.27 tn inflow of IDR32.27 tnin the domestic capital market over the past 38 da in the domestic capital market over the past 38 days and inflation remaining below 5% (YoY) since Mar s and inflation remaining below 5% (YoY) since Mar'23, provides a strong foundation for BI to promptly implement a reduction in the BI7DRRR rate in the 3Q23. Additionally, this positive Additionally, this positive outlook is supported by a higher balance of payment outlook is supported by a higher balance of payment surplus in the 1 surplus in the 1Q23, intensified local currency tr Q23, intensified local currency transactions, ongoi ansactions, ongoing revision of ng revision of DHE, and fiscal surplus until Mar '23. DHE, and fiscal surplus until Mar '23.

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