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Rupiah Pressure Eases, But Beware of Consumption Contraction

Fitra Faisal, a senior economist at Samuel Sekuritas, provides a weekly update on economic and market developments. In the latest update, he highlights some positive news and some aspects that need to be watched.

Bank Indonesia recently announced that Indonesia’s foreign exchange reserves increased to 140.2 billion US Dollars. This figure is in line with previous expectations, which ranged around 140 billion US Dollars as the upper bound. These large reserves give Bank Indonesia a comfortable buffer to intervene and maintain the Rupiah at a favorable level, between 16,000 and 16,200 per USD.

The Rupiah’s recent developments have also been influenced by global sentiment. From the United States, although the announcement of an increase in the unemployment rate from 4% to 4.1% may seem negative, for monetary policy, this can actually be a positive signal. With the rise in the unemployment rate, the Fed has the opportunity to lower its interest rates as the economy is already on the desired trajectory, which is to reduce inflation. This also brings good news for the Rupiah.

However, there are some news items that need to be watched. The first is regarding the Purchasing Managers’ Index (PMI). Indonesia’s PMI dropped from 52.1 to 50.7, the lowest figure in the past 3-4 months. This decline is influenced by exchange rate pressures, which are expected to ease in the coming months, allowing the PMI to improve again.

For inflation, the developments are quite positive. The latest inflation rate stands at 2.51%, below the consensus of around 2.7%. Even the lower bound scenario shows a figure of 2.58%. This indicates that inflation is still under control. However, there is also a slight decrease in demand, which impacts the low inflation rate.

From a monetary policy perspective, the controlled inflation condition provides Bank Indonesia with the room to maintain its interest rates or at least not increase them. However, in terms of economic growth, there is a possibility of contraction due to somewhat constrained demand.

The stock market has responded to this positive news quite well. The Jakarta Composite Index (IHSG) still has the potential to reach the 7,300 level. However, there is a possibility that the IHSG could correct back to the 7,100 level. In the bond market, there is bullish potential, although the yield developments are still very narrow, ranging between 7.02 to 7.12. The 10-year bond yield still has the potential to drop to the 6.95 level, indicating a bullish trend that could be followed in the 3, 4, and 6-year tenors.

Several sectors showing positive momentum development are the financial sector (IDX Finance), transportation (IDX Transportation), and property (IDX Property). These are sectors worth considering for investment potential.

This concludes Fitra Faisal’s update on macroeconomic developments, the bond market, and the IHSG. It is hoped that this information will be useful for market participants and investors in making decisions.