Indonesia Macro Update - BI7DRR 25 Aug 2023
BI7DRR Maintained at 5.75%: Focus on Rupiah Stabilization
As a manifestation of time consistency and procyclical policy, Bank Indonesia (BI) has maintained the BI7DRR at 5.75% (Cons: 5.75%, KBVS: 5.75%, Prev: 5.75%). Thus, BI will support FX liquidity by effectively implementing the Foreign Exchange Receipt from Natural Resource Export (DHE SDA) and initiating the issuance of BI Rupiah Securities (SRBI) starting on 15 Sep '23.
Considering the heightened risk perception towards Indonesian investments due to global volatility, which has resulted in a 1.26% Rupiah depreciation and a 0.68% reduction in the Indonesian Composite Bond Index (ICBI) from 31 Jul to 24 Aug '23, we are of the view that these policies are prudent. We anticipate that these measures will be supported by continued favorable domestic liquidity, evident in the high third-party funds to deposit ratio (AL/DPK) of 26.57% in Jul '23 (prev: 26.73%). Furthermore, we view BI's actions positively, aimed at preserving risk perception and maintaining the attractiveness of domestic asset portfolio yields, especially SBN. Consequently, we still anticipate that the possibility of a reduction in the BI7DRRR remains open throughout the remainder of 2023.
Fikri C Permana - KBVS Research Team