Indonesia: Growth-inflation mix supports steady BI stance – DBS

DBS Group Research economist Radhika Rao notes Indonesia’s onshore markets are focused on the appointment of a new Bank Indonesia Governor after Perry Warjiyo’s departure, with Acting Governor Destry Damayanti prioritising non-rate measures and IDR liquidity. The report highlights a mixed growth-inflation backdrop, a weaker external balance and a rangebound USDIDR, arguing this combination supports an unchanged policy rate stance near term.

New BI leadership and macro backdrop

"Onshore markets are awaiting the appointment of the new Bank Indonesia Governor, after chief Warjiyo stepped down last week."

"Pullback in oil prices and absence of fresh negative triggers has kept USDIDR rangebound within 17900-18000 this week, whilst the benchmark long-end yield holds steady around 7.3%, taking cues from hardening in US rates."

"The evolving growth-inflation mix has been mixed."

"2Q GDP growth report, due on Wednesday, is likely to show that output expanded by a relatively firm 5.3% yoy notwithstanding the energy shock vs 5.6% in 1Q."

"This growth-inflation mix coupled with stability in the rupiah makes the case for the BI to maintain its rates this month."