MNI Insight: Indonesia Macro Outlook - Next Move Rate Cut, IDR Best Performer In EM Asia, But Not Cheap

EXECUTIVE SUMMARY:

• BI has paused its tightening cycle and the discussion is now on the first easing but FX stability will be a key condition as well as low inflation and a weakening economy. A signal that the Fed has reached its terminal rate is probably also needed, so that the Indonesian-US rate differential doesn't go negative.
• Market expectations look for a resilient backdrop to continue, although the current account is forecast to slip into deficit next year, in line with a terms of trade peak. We should stay away from historical wides though. Market expectations of firmer IDR levels is likely to rest on lower Fed rates in 2024.
• BI will likely guard against excessive weakness though, with USDIDR moves above 15400 (2023 highs) likely to draw selling interest at the market positions for easier global policy settings in 2024.

See full chartbook here:

Indonesia charts June23.pdf