• Indonesia's FX reserves marginally declined to USD 145.3 Bn in Jul-26, from USD 145.6 Bn in June. FX reserves declined despite the government’s recent issuance of panda bonds totaling USD 1 Bn, indicating either continued FX intervention by the Central Bank or continuing deficit in Indonesia’s trade balance.
• Compared to aggressive pro-stability measures present in June, the month of July has been relatively more subdued. BI has reduced SRBI outstanding amount in July, resulting in USD 0.3 Bn net outflow from the instrument. However, this reduction seems to indicate a shift towards a ‘surgical approach’ instead, with BI introducing deeper discounts on FX hedging instruments in its latest monthly meeting.
• This FX hedge approach by BI seems to manifest from a desire to implement a more ‘painless’ way to enact its pro-stability measures, as high SRBI issuance risks being absorbed by banks, thus lowering their lending appetite. This was further reinforced by the new liquidity incentive for banks to hold Rupiah SBN & SRBI below 19% of total third-party funds.
• This approach coincided with favorable global conditions (AI outflow rotation and post latest FOMC), and has yielded slight positive results, with USD 0.4 Bn inflow into bonds and USD 0.1 Bn into stocks. Unfortunately, these inflows have failed to halt Rupiah depreciation, whose value fell by 0.7% during July, possibly signifying a weak Current Account performance.
• Moving forward, we still see considerable pressure facing the Rupiah from four fronts. First, the hawkish expectation from The Fed. Second, ongoing uncertainty on MSCI’s decision regarding Indonesia’s investability. Third, the ongoing trade deficit due to higher energy prices coupled with export growth slowdown. Fourth, additional SAL injection into SOE banks indicates faster loan growth is coming.
• Alongside these (largely external) risks, the recent resignation of BI’s governor presented a new uncertainty. It is often said that ‘personnel is policy’, so the question is whether we will see a continuation of BI's ‘surgical approach’ or if there will be a more expansive policy direction. For now, BI has reason to emphasize stability, given that the robust Q2 GDP growth of 5.29% YoY should alleviate any concerns about growth. We still maintain our call for a 25-50 bps BI rate hike this year, but a downward revision remains possible if H2-26 growth proves to be slower than expected.

Versi lengkap report ini (dan report sebelumnya) dapat diakses lewat link berikut: https://s.id/BCA_REI