Political Uncertainty Adding To IDR Weakness, BI Hoping To Cut In H2

In two weeks, Indonesians vote for a new President, Senate and House of Representatives. Polls have consistently had defence minister Prabowo in the lead but it is too tight to determine whether he can avoid a run-off in June and most expect that it will occur. Ahead of the election USDIDR has risen despite Bank Indonesia (BI) intervention last week on concerns that the finance minister may resign. The pair is now up 2.7% this month and over 1% this last week.

• Today BI governor Warjiyo said that monetary policy will ensure rupiah and price stability, demonstrating that the focus of the central bank remains on FX stabilisation. Resolution of the political uncertainty should help with this, given economic fundamentals are supportive. BI is hoping to be able to cut rates in H2 2024 as the currency should have strengthened by then.
• The average of the four polls taken over the second half of January gives Prabowo 50.4% support, Anies 22.6% and Ganjar 20.1%. Prabowo received over 50% support in 3 of the last 5 polls. He will not only need above 50% of the vote to avoid a runoff but also at least 20% in over half of the provinces. At this stage it looks like a runoff would be between him and Anies.
• The popular President Jokowi has supported Prabowo even though his party’s candidate is Ganjar, but his son is running as the former’s VP. Some within his cabinet are unhappy about this and that has added to uncertainties surrounding the current government. There is also talk that there is some dissent regarding social assistance. The finance minister is well respected given her success in achieving fiscal targets.