Indonesia: Rate and New Goverment
One more 25bps cut in 4Q24 is expected, with new cabinet announced
DBS iWealth21 Nov 2024
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Key Highlights

  • Bank Indonesia hit the pause button, to support rupiah and financial market stability.
  • Inflation continues to decelerate.
  • Real rates deflated by headline and core inflation leaves room to maintain a dovish bias.
  • Implications: We retain our call for one more 25bps cut in 4Q24.
  • New cabinet with a mix of incumbent ministers and technocrats will bode well for continuity and credibility.

Focus will also be on Prabowonomics, with an eye on the economic agenda and its fiscal implications.

 

Things We Noticed

We retain our call for one more 25bps cut in 4Q24.

Bank Indonesia (BI) paused its rate cuts in October, holding the benchmark rate at 6.0%, following a September cut. This decision was driven by IDR volatility and the need to stabilize the currency. BI also maintained its 2024 growth projection of 4.7-5.5% and expects moderate loan growth of 10-12%. To support lending, BI extended liquidity incentives to Micro, Small Medium Enterprises (MSMEs), agriculture, and manufacturing, while easing down payment requirements for property and auto loans.

Inflation continues to decline, with September’s headline rate at 1.8%, its slowest in three years. Core inflation slightly increased to 2.1%, while food and transportation costs are dropping. The IDR has been volatile, gaining 7% in August before weakening by 3% due to the global dollar’s recovery.

Looking ahead, BI anticipates further US Federal Reserve rate cuts, leaving room for additional easing. BI may lower rates by 25bp this quarter, depending on US dollar and bond market trends, with more cuts expected to bring the benchmark rate to 5% by mid-2025.

 

New government takes office.

President-elect Prabowo Subianto officially takes office on 20 October 2024, after winning the election with a focus on economic continuity and social welfare.

Key points include:

  • Cabinet Formation: Prabowo retains several incumbent ministers, including the Finance Minister, to ensure credibility and continuity. Plans to create a State Revenue Agency to improve tax collection are under consideration.
  • Larger Cabinet: The cabinet expands beyond 34 ministries to accommodate coalition partners to 41 ministries, which raises operational and cost implications.
  • Economic Agenda ("Prabowonomics"): The government aims to boost investment and growth with increased fiscal spending in the 2025 Budget, including allocations for education and healthcare. The fiscal deficit is projected to widen to -2.5% of GDP.
  • Resource Downstreaming Policies: Plans include easing regulations to promote local industries and attract investment, particularly in clean energy.
  • Foreign Policy: A neutral and non-aligned stance is expected, balancing trade with China and security ties with the US, while pursuing Organization of Economic Co-Operation and Development (OECD) membership and enhancing governance standards.

 

 

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Equity Mutual Funds:

Big Caps:

  • Eastspring Investment Value Discovery
  • Schroder Dana Prestasi
  • Ashmore Dana Ekuitas Nusantara

Small-Mid Caps:

  • Eastspring Investment Alpha Navigator
  • Ashmore Dana Progresif Nusantara
  • Schroder 90 plus Equity Fund

Index:

  • BNP Paribas Sri Kehati
  • BNP Paribas IDX Growth30

 

 

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DISCLAIMER

This publication is distributed by PT Bank DBS Indonesia (DBSI). DBSI is licensed and supervised by the Indonesia Financial Services Authority (OJK). This publication is not and does not constitute or form part of any offer, recommendation, invitation or solicitation to you to subscribe to or to enter into any transaction as described, nor is it calculated to invite or permit the making of offers to the public to subscribe to or enter into any transaction for cash or other consideration and should not be viewed as such.

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PT Bank DBS Indonesia (“DBSI”) is licensed and supervised by the Indonesia Financial Services Authority (OJK) and a member of the Indonesia Deposit Insurance Corporation (LPS). This publication is not and does not constitute or form part of any offer, recommendation, invitation or solicitation to you to subscribe to or to enter into any transaction as described, nor is it calculated to invite or permit the making of offers to the public to subscribe to or enter into any transaction for cash or other consideration and should not be viewed as such.