Jakarta, CNBC Indonesia – The Bank Indonesia Board of Governors (RDG BI) meeting will be held on Tuesday and Wednesday this week (20-21 July 2024). One thing that is of concern is the interest rate (BI rate) which the market projects will still be kept at the current rate even though there are already voices starting to be heard for BI to cut its interest rate .
The BI rate was last raised in April 2024 and was held at the May to July meeting at 6.25%.
Consensus CNBC Indonesia gathered from 13 institutes/institutions, most expected BI to keep its interest rate still at 6.25%. At the same time, there is one institution that predicts that BI will reduce its interest rate by 25 (basis points / bps) this time.
Previously, at BI RDG last July, BI kept its interest rate at 6.25% which is consistently in line with monetary policy for stability as a proactive and progressive measure to ensure that inflation remains under control within the target of 2.5 ± 1% in 2024 and 2025.
BI Governor Perry Warjiyo said this was done to stabilize the effectiveness of the rupiah exchange rate and attract foreign capital inflows. At the same time, he said, macroprudential policies and payment systems still need to grow to support sustainable economic growth.
“Loose macroprudential policies are still being pursued to encourage credit or banking financing for businesses and households,” he said.
At the same time, currently, the rupiah exchange rate against the US dollar tends to strengthen significantly, even in today’s trade (20/8/2024), the rupiah touched the rate of IDR 15,460 / US$ or the lower rate from December 29, 2023.
The appreciation of the rupiah occurred after it reached its peak on June 21, 2024, which touched the level of IDR 16,400 / US$ and then strengthened until mid-July 2024.
Two weeks later, the rupiah decreased slightly and almost reached the psychological level of IDR 16,300 / US $.
From the beginning of August until today, the rupiah seems very strong, even below the level of IDR 15,500 / US$.
This cannot be separated from the US economy which appears to be declining in terms of inflation (both consumer and producer) until the closely watched employment data gets colder.
The sound of interest rate cuts by the US central bank (The Fed) is getting louder, by 25 to 50 bps. Not without reason, as economic conditions in the US are worsening.
Responding to potential cut level which is getting bigger, the US dollar index (DXY) has been seen to have dropped significantly from the initial level of 106 at the end of June 2024 and is currently below the 102 level in less than two months .
Director & Chief Investment Officer of Indonesia Fixed Income Manulife Asset Management, Ezra Nazula said that the upbeat optimism about the Fed’s approaching interest rate cut is reflected in the US Treasury (UST) market, where UST short tenor yield fell more than long tenor, and The difference in yield between the 10Y and 2Y tenors is narrowing, being the lowest since the aggressive FFR increase in 2022. Changes can be seen in expected interest rates also affect the US dollar which is starting to weaken against others. currencies.
Rupiah continues to strengthen
The still strengthening Rupiah cannot be separated from the flow of foreign currency entering the domestic financial market, especially through Government Securities (SBN) and Bank Indonesia Rupiah Securities (SRBI) as that they offer a high yield, even above 7%.
Business data published by BI as of 12-15 August 2024 shows that foreign investors registered a net purchase of IDR 9.67 trillion (net purchase of IDR 7.36 trillion on the SBN market, IDR 2.18 trillion on the stock market and IDR 0.13 trillion on SRBI).
During 2024, based on settlement data up to August 15, 2024, foreign investors were recorded as net sales of IDR 11.54 trillion on the SBN market, while net purchases of IDR 179.37 trillion on SRBI and net purchases of IDR 3.36 trillion on the stock market.
At the same time, based on settlement data up to August 15, 2024 in the second semester of 2024, foreign investors registered net purchases in SRBI amounting to IDR 49.02 trillion, in the SBN market amounting to IDR 22.42 trillion , and in the stock market amounts to IDR 3.02 trillion.
Responding to the rupiah that continues to show good performance, Bank Mega’s Finance Department and Head of Global Market, Donny Lukito plans that BI will continue to maintain the BI Rating at the BI Board of Governors Meeting in the August 2024.
According to Banca Mega, the Head of Macroeconomics and Financial Market Research at Bank Mandiri, Dian Ayu Yustina, also assesses that BI has a very open place to cut the BI rate. However, taking into account the inflation rate and the rupiah exchange rate which is still under pressure, the BI interest rate is expected to remain at 6.25%.
The current rate of the rupiah is more encouraging capital inflow which is heavily influenced by market sentiment, and from a fundamental point of view, the trade surplus continues to decline, BI must be vigilant about its impact on the exchange rate.
Bahana Sekuritas Head of Research, Satria Sambijantoro said that if the Fed and BI loosen their interest rates, it will only fuel inflationary pressures again and force the central bank to return to action. a hawk.
Satria also believes that there will be an increase in volatility as most of the recent strengthening of the rupiah is due to short-term financing flows and short covernot because of basic features. This is reflected in the cumulative export of the top 10 products in Indonesia decreasing by 5.8% compared to last year.
However, voices about BI interest rate cuts have started to appear from United Overseas Bank (UOB), which estimates that it will be 6% or a reduction of 25 bps.
CNBC INDONESIA RESEARCH
2024-08-20 08:30:39
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