Indonesia Macro Update - BI7DRR Update 20 Oct 2023
KBVS MACRO UPDATE
Friday, 20 October 2023
BI Unexpectedly Raised The BI7DRR by 25 bps to 6.00%
Bank Indonesia (BI) has decided to increase the BI7DRR rate by 25bps for the first time in 2023, bringing it to 6.00% (Cons: 5.75%, KBVS: 5.75%, Prev: 5.75%). Nevertheless, BI continues to maintain its accommodative macroprudential policy by reducing the Macroprudential Liquidity Buffer ratio by 100 bps for Conventional Commercial Banks and Sharia Commercial Banks/Business Units to 5.00% and 3.50%, respectively.
These conditions were unforeseen in our previous projections, prompting us to adjust our assumptions for the SUN10Y yield at the end of 2023 to a new range of 6.70%-7.10%, from 6.06%-6.46%. Simultaneously, the increasing attractiveness of the SUN10Y yield is expected to help stabilize the Rupiah, aiming for a range of IDR 15,481 per USD (recently at IDR 15,838 per USD). Furthermore,we anticipate that this will drive an increase in inflation from the import’s side, leading us to forecast that headline inflation will rise from 2.72% YoY-3.12% YoY, from 2.44% YoY-2.84% YoY at the end of 2023. With the note that we also anticipate the liquidity boost facilitated by BI through the issuance of SRBI since 27 Sep '23, foreign currency term deposit (TD Valas) auctions, and DHE SDA, in addition to interventions in DNDF and FX Swap auctions, will be further reinforced by the issuance of BI Foreign Securities (Sekuritas Valas BI-SVBI) and BI Foreign Sukuk (Sukuk Valas BI-SUVBI), scheduled to commence implementation on 21 Nov '23. Simultaneously, we maintain the assumption that the government will not require the issuance of global bonds until the end of 2023.
Regards,
Fikri C Permana - KBVS Research Team