Slim Chance of Hope on Liquidity Expansion

I'ts been quite a gloomy weeks recently for JCI, performing -6.2% YTD with a total of IDR9.3tn of net foreign outflow. JCI has traded lower for 5 straight days, until June 20th.

JCI has rebounded and gained +1.4%. We believe this was mainly driven by Indonesia's strong trade balance and strong bank loan disbursement in May with a growth rate of +12.2% YoY.

Meanwhile, BI RDG meeting concludes that Bank Indonesia kept BI-Rate unchanged at 6.25% in Jun-24, in line with our economist's projection. The decision aims to uphold the stability of the rupiah exchange rate and inflation rate through preemptive and forward-looking measures amidst heightened global economic uncertainty.

The Central Bank noted that the global economic outlook has slightly improved due to accelerated economic activities in India and China. Overall, the projected 2024 Balance of Payments indicates stability, with the current account expected to range from a deficit of 0.1% to 0.9% of GDP.

Our economist team anticipate that the recent decision on the BI rate will have a favorable impact on liquidity expansion, as outlined in our previous report.

Bank Indonesia's recent action is consistent with our forecast of maintaining the policy rate unchanged. Recent indicators also indicate Bank Indonesia's confidence that this policy stance will stabilize the value of the rupiah. We interpret the recent depreciation of the rupiah as transient, largely influenced by a strong dollar.

Trade Balance vs. Rupiah Performance

Source: BPS, Bloomberg, Sucor Sekuritas

More importantly, Indonesia's consistent trade surplus suggests substantial potential for the rupiah to strengthen. Bank Indonesia is likely to await a policy rate cut by the Federal Reserve before considering its own reductions.

We expect the current policy rate to benefit the banking sector in the immediate future, given the robust growth in lending observed by Bank Indonesia. Furthermore, Bank Indonesia's accommodative monetary policy, evidenced by its triple intervention strategy in bonds, forex, and derivatives markets, will persist in supporting bank liquidity and fostering higher loan growth.