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Friday, June 21, 2024       12:00 WIB

Macro - Unchanged BI rate suggests new Rupiah equilibrium level



MacroInsight /Click here for full PDF version

Author(s):Luthfi Ridho

  • BI decided to keep the BI rate unchanged at 6.25% despite continuous Rupiah depreciation at -9.6% yoy in mid Jun24 (-8.2% yoy in May24).
  • BI keep its economic growth and inflation target unchanged at 4.7-5.5% and c.1.5-3.5% for FY24.
  • We see the decision implicitly suggests the new acceptable Rupiah level at around c.Rp16k/US$. We think another 25bp rate increase is possible.
Unchanged BI rate despite depreciating Rupiah

Bank Indonesia (BI) decided to keep BI rate unchanged at 6.25% along with the deposit/lending facility at 5.5/7%. This was in-line with consensus but differ with our expectation. Furthermore, no specific assessment on Rupiah (whether it is overvalued or undervalued) was mentioned during the press conference. Recently, the Rupiah remained under pressure at -1.8% mom/-9.6% yoy to Rp16.4k/US$ (from +0.3% mom/-8.2% yoy in May24 at Rp16k/US$). Nevertheless, we think that the combination of unchanged BI rate and increasing FX reserves suggests accepted Rupiah level at around c.Rp16k/US$ as the new equilibrium.

FFR one time cut in FY24, macro variables unchanged

On the FFR expectation, BI expects of just one cut at 25bp in Dec24 as their baseline scenario (previously the FFR cut expectation is at c.75bp in 2H24). On the alternative scenario, it puts no FFR cut in FY24 but 25-50bp FFR cut in FY25. On domestic economy, it kept (1) GDP growth expectation at c.4.7-5.5%, (2) inflation expectation at c.1.5-3.5% and (3) current account deficit at c.-0.1% to -0.9% of GDP in FY24.

Expect another 25bp increase in 2H24

We see the unchanged policy rate to be supportive for promoting more economic activity growth. However, we think another 25bp increase is possible before year-end, especially if there is another steep Rupiah depreciation event. Accordingly, we expect the Rupiah to average at Rp16k/US$ in FY24 (Rp15.2k/US$ in FY23).






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