top of page

Liquidity: Paramount Determinant for Prospective Investment

Liquidity expansion is one of the most important variable should one wants to invest in a financial asset. This expansion ensures the further inflation of financial asset prices, encompassing bonds and equities.

Our projections indicate that the principal liquidity expansion gauge, as denoted by the broader monetary aggregate M2, within Indonesia, is poised to manifest in the second quarter of 2024 subsequent to a notable contraction in the fourth quarter of 2023.

BI Rate vs Indo 10 year yield (%) & JCI vs Indo M2 YoY (%)

Source: Bloomberg, BI, Sucor Research

Throughout the tightening phase, Bank Indonesia persisted in elevating the policy rate on April 24, while also introducing securitized instruments such as SRBI, SVBI, and SUVBI, thereby naturally absorbing liquidity from the financial sphere.

Nonetheless, the accommodative stance of fiscal policy, as evidenced by assertive governmental expenditure in capital investment, social welfare initiatives, and remuneration disbursements as of April 2024, is anticipated to herald a reversal in the trajectory of liquidity expansion for 2024.

Government Budget Realization 4Q23 vs 1Q24

Source: Ministry of Finance, Sucor Research

Given the stability of the rupiah subsequent to the most recent rate adjustment, it is anticipated that Bank Indonesia will maintain the policy rate in both June and July, notwithstanding prevailing uncertainties regarding geopolitical tensions.

Anticipated acceleration in loan growth during the latter half of 2024 is expected to be facilitated by the proactive measures undertaken by Bank Indonesia to bolster the financial system. Financial instruments, including bonds and equities, are projected to experience reinflation in the third quarter of 2024, culminating in a reduction of the yield on government 10-year bonds to 6.5%.

Furthermore, the sustained positive trend in the terms of trade is poised to bolster the rupiah throughout 2024. We observed that foreign capital inflow has been increasing recently. If commodities' prices are stable at the current level, we project trade surplus to reach USD3.5bn a month going forward.


bottom of page