• Bank Indonesia (BI) maintained its policy rate at 6.00% during its tenth Board of Governor meeting this year, in line with consensus, but defying house expectation
• The Deposit Facility and Lending Facility rates were also retained at 5.25% and 6.75%, respectively.
• BI statement: "This decision is consistent with the direction of monetary policy to ensure controlled inflation within the target of 1.5% - 3.5% in 2024 and 2025, and to support sustainable economic growth." It also added, "The focus of short-term monetary policy is on the stability of the rupiah exchange rate due to increasing uncertainty in global financial markets." This reflects BI's priority on maintaining rupiah's stability while balancing inflation control and supporting growth.
• Sustained growth and controlled inflation provide room for further easing
• GDP: BI stated that 3Q24 growth was driven by domestic demand, with 4Q24 growth expected to remain strong, bolstered by rising investment, household consumption, and higher government spending. As a result, BI maintains its 2024 growth forecast at 4.7% - 5.5% (2023: 5.1%), although it stresses the need for stronger growth momentum.
• Inflation: No change in its inflation target, which remains at 1.5% - 3.5% (2023: 3.7%) for 2024 and 2025. This target is reflected in September's inflation rate, which fell to 1.84% (Aug: 2.12%), the lowest since November 2021.
• Rupiah: As of October 15th, the rupiah has depreciated by 0.9% against the USD compared to the end of 2023. This decline is milder than the peso's (-4.3%) but weaker than the ringgit and baht, which strengthened by 6.2% and 4.6%, respectively.
• Another 25 bps is still expected by year-end, depending on rupiah's stability
• We still expect another 25 bps rate cut by year-end, though this remains dependent on the rupiah's stability. The rupiah remains under pressure despite expectations of further rate cuts by the US Fed in the coming months, aligning with our expectation that BI will take a cautious approach following the surprise cut in September.
• Nonetheless, we believe BI has room for further monetary easing, given concerns about slowing growth in the current high-interest rate environment. Several regional economies, such as Vietnam (7.4%; 2Q24: 7.1%) and Singapore (4.1%; 2Q24: 2.9%) have continued to expand its GDP growth in 3Q24. As growth becomes a priority, we expect BI to implement additional rate cut to support the economy.
• USDIDR year-end forecast (15,631; 2023: 15,493): We retain our year-end forecast, as the rupiah remains vulnerable to global financial uncertainty, heightened geopolitical tensions and the overall health of major economies. Given these lingering downside risks, we remain cautious and maintain our forecast.

Source: Kenanga Research - 17 Oct 2024