DBS Group Research economist Radhika Rao highlights that Indonesia’s onshore markets are under pressure, with the rupee at a record low and stocks near six-year lows. It notes that Bank Indonesia’s mandate will be expanded to include the real sector as fiscal and oil pressures mount. Despite the expanded mandate, DBS expects monetary policy to remain focused on financial market stability and further tightening of interest rates.
Rupee weakness and BI mandate change
“Onshore asset markets in Indonesia have come under pressure, with the IDR falling to an all-time low above 18,000/USD (down ~7.5% year-to-date) and the benchmark equity index hitting its lowest level in almost six years.”
“Without fuel price adjustments to curb demand, higher global oil prices and a weak rupee are likely to weigh on the trade balance and, consequently, the current account.”
“Separately, parliament this week passed an amendment to the Finance Act that, among other things, will expand BI’s mandate to include the real sector (and potentially job creation).”
“Despite the proposed changes to the mandate, we expect monetary policy to prioritize financial market stability in the near term and tighten interest rates further to defend the currency.”
“In bonds, the yield curve has moved higher for all tenors this week, maintaining a bear-flattening bias.”
(This article was created with the facilitate of an artificial intelligence tool and has been reviewed by an editor.)
