INDONESIA: BI On Hold But Likely To Retain Easing Bias
Indonesia is widely expected to keep rates at 5% today with only 2 out of 38 analysts surveyed by Bloomberg forecasting a 25bp cut (see MNI BI Preview). Bank Indonesia (BI) holds monthly meetings and so has space to be cautious given its focus on FX stability and that it intervened to defend the rupiah in recent weeks following political instability and the replacement of respected Finance Minister Indrawati. However with signs of weakening growth and moderating inflation, it will keep its easing bias.
- Headline inflation moderated 0.1pp to 2.3% y/y in August with lower transportation inflation offsetting higher food driven by rice prices. Core moderated to 2.2% y/y from 2.3%, the lowest since October, reflecting softer domestic demand.
- Both measures are now below the mid-point of BI’s 1.5-3.5% target band but in August the central bank said that it is “confident” that inflation will remain within the corridor this year and next with inflation expectations anchored, spare capacity, effects from digitalisation and “managed imported inflation”.
Indonesia CPI y/y%
Source: MNI - Market News/LSEG
- The August S&P Global PMI showed an increase in manufacturers’ cost inflation due to the stronger USD which was passed on to customers driving selling price inflation to its highest since July 2024.
- Economic data since the August meeting have been mixed. Consumer confidence fell to its lowest in almost three years. Weak household sentiment is signalling a slowdown in consumption in Q3.
- July merchandise exports were robust rising 9.9% y/y with shipments to key destinations China and the US robust but also to the rest of ASEAN and the EU. In contrast, imports fell 5.9% y/y, a tentative signal of weak domestic demand.
- The S&P Global manufacturing PMI returned to positive territory with both domestic and export orders growing.
Indonesia merchandise exports vs imports y/y% 3-mth ma
Source: MNI - Market News/LSEG
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After range trading on Friday, gold is 0.5% higher today at $3351.2/oz, close to the intraday high of $3351.81. It appears to have been supported by slightly lower US yields and greenback, and possibly also by some doubt regarding the prospects for a Ukraine peace deal. Russia is demanding the Donbas, not all of which it currently occupies, while Ukraine is not prepared to cede territory, especially if unoccupied. Ukraine’s President Zelenskyy and other European leaders meet with US President Trump today.
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- The US 10-year yield has edged lower trading around 4.304%, down 0.01 from its close.
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- Fortune - “Wall Street overwhelmingly expects the Federal Reserve to cut rates next month, and Chairman Jerome Powell’s speech on Friday will give him a chance to hint at which direction policymakers are headed. But some analysts don’t think a September rate cut is in the bag, and even some that do expect a cut are doubtful that Powell will tease it at Jackson Hole.”
- Daily Chartbook on X: "On the surface: steady and solid consumer momentum. Under the hood: a rising share of sales growth is being 'paid for' by inflation."@Econ_Parker. See Fig.1 Below.
- Data/Events: New York Fed Services Business Activity, NAHB Housing Starts
Fig 1: Retail & Inflation
Source: MNI - Market News/@dailychartbook/Arch
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- China's bond futures are down in the morning session, with their biggest one day fall since May.
- The 10-year is down -0.32 at 108.00, taking it further below all major moving averages. The nearest, the 20-day EMA, is at 108.45.
- The 2-year bond future is down -0.04 at 102.30. Having approached the 20-day EMA of 102.36, today's falls see it move further below.
- The CGB10 year continues to drift higher, following on from moves on Friday. Having finished Friday at 1.74%, it is up +3bp today at 1.77%, the highest level of the month.
