Bank Indonesia (BI) decided to maintain its key interest rates during the October meeting held on October 15-16. This includes keeping the BI-Rate at 6.00%, the Deposit Facility Rate at 5.25%, and the Lending Facility Rate at 6.75%. This decision follows a 25-basis-point rate cut last month and aligns with the central bank’s monetary policy aimed at controlling inflation within the 2.5±1% target for 2024 while supporting sustainable economic growth. Additionally, Bank Indonesia remains committed to ensuring stability of the Rupiah amidst the global uncertainty. 

BI also reported the loan growth in September 2024 which remained high, reaching 10.85% Year-on-Year (YoY). This growth in domestic loans was supported by a strong lending appetite among banks, who are currently reallocating liquid assets into credit. Credit growth remains robust across most economic sectors, particularly the Corporate Services sector, Trade, Manufacturing Industry, Mining, and Transportation. Working capital loans, consumer loans, and investment loans remain the contributing factor towards overall growth with each growing 10.01%, 10.88%, and 12.26%, respectively.

‍Simpan Views

Indonesia is currently experiencing monthly deflationary pressures for five consecutive months. It would make sense if BI would need lower rates soon to stimulate domestic consumption and the overall economy. However, we find BI’s October decision in line with our outlook given its focus on Rupiah stability as well. If BI were to aggressively lower interest rates ahead of the Fed’s decision, we would expect the Rupiah to depreciate at a faster rate. We believe that interest rates globally will continue to decline, and central banks,to prepare for the next rate cuts, prompting BI to further cut rates. 

As a result, this presents an opportune time for investors to readjust their portfolios, shifting towards from deposits (which is expected to decline rapidly in line with BI rate cuts) to long-term government bonds and public equity investments.

Simpan Bond Fund offers investors exposure to mid-to-long duration government bonds above the benchmark which offers attractive yield above money market instruments and potential capital gain appreciation as central banks continue to cut rates. Furthermore, we believe for long-term investors, an allocation to equities through Simpan’s Sustainable Equity Fund offers exposure to mid-to-large market cap stocks with strong fundamentals which would stand to benefit further from additional rate cuts in the medium term.