We have summarized key takeaways from the Bank Indonesia (BI) Board of Governors' Meeting (RDG) on July 16-17, 2024, to help you understand its impact on portfolio management. Here's the summary:

  • BI Rate: BI Rate remains unchanged at 6.25% to maintain economic stability and Rupiah stability.
  • Focus on Rupiah Stability: BI prioritizes Rupiah stability amidst global uncertainties and market fluctuations.
  • Potential Rate Cut: Earliest possible BI Rate cut could be in Q4 2024, contingent on Rupiah stability and The Fed's FFR cut.
  • Impact on Indonesia: BI's decision is influenced by Rupiah stability, global interest rates, and geopolitical developments.

Global Outlook:

  • Geopolitical Uncertainties: Short-term volatility could arise from developments in the US and Europe, especially if there are significant political changes like a Trump win.
  • The Fed's Policy: The Fed's anticipated rate cut in September needs to be monitored. Deviations from expectations could trigger market corrections and volatility.
  • Impact on Indonesia: Indonesia's monetary policy faces external risks from geopolitical factors and The Fed's policy. Bank Indonesia needs to closely monitor the situation and be ready to respond to maintain Rupiah and economic stability.

Domestic Outlook:

  • BI Maintains Rate: Although some perceive our interest rate to be high, it is necessary to support Rupiah stability.
  • Foreign Investors Cautious: Foreign investor inflows into Indonesia remain low. They are adopting a wait-and-see approach due to the recent Rupiah depreciation. Despite considering the Rupiah undervalued, foreign investors are weighing the risk of further Rupiah weakness.
  • Market-Friendly Policies: We support BI's current market-friendly policies, as funds from bonds and the stock market are still flowing into domestic instruments, namely Bank Indonesia Rupiah Securities (SRBI). This helps stabilize the Rupiah and instills confidence in foreign investors to remain invested in Indonesian assets with limited risk.

Overall, Bank Indonesia is taking a cautious approach and prioritizing Rupiah stability. A rate cut is possible in Q4 2024, but it depends on global and domestic conditions.