According to Statistics Indonesia (BPS), the monthly inflation rate in October slowed to 0.17% MoM, lower than the previous month's 0.19% MoM. This came in below both our projection of 0.18% MoM and the consensus estimate of 0.20% MoM.
The current interest rate level is adequate for maintaining Rupiah stability, so we expect BI to retain the interest rate at 6.00% until the end of the year. Furthermore, we also anticipate that BI will cut the interest rate next year to 5.00%, in line with the easing of global uncertainty.
Indonesia has sustained a positive trend in international trade since May 2020, resulting in 41 consecutive months of trade surplus. Looking ahead, it is expected that export performance will continue to deteriorate due to declining commodity prices, a result of reduced global demand.
The primary factor behind this inflation was the food, beverage, and tobacco basket, which contributed 0.09% MoM to the inflation rate. Besides, the transportation group displayed the second highest growth. This pattern aligns with the government intervention, which increased the price of...
In contrast, imports are poised to outpace exports, driven by the sustained strength of the domestic economy. As a result, our forecast points to a further narrowing of the trade surplus, with the possibility of the balance turning into a deficit.
The main contributors to the inflation were food, beverages, and tobacco basket, contributing 0.10% MoM and growing by 0.39% MoM, mostly due to Eid-al-Adha. On the other hand, transportation basket experienced deflation of -0.10% MoM.
Volatile food prices demonstrated a deflation rate of -0.51% MoM, marking a decline from July's 0.17% MoM increase. Meanwhile, administered prices experienced a deceleration to -0.02% MoM, in contrast to a rate of 0.44% MoM in the previous month.
The triple intervention refers to the BI interventions in the spot, Domestic Non-Deliverable Forwards (DNDF), and government securities (SBN) markets. Rupiah was reported at Rp15,325/USD as of 21 August-23, higher than the macroeconomic assumption on APBN 2023 at Rp14,800/USD.
Imports are projected to outperform exports, propelled by the enduring strength of the domestic economy. As a consequence, our forecast indicates a further decrease in the trade surplus and the possibility of the balance shifting into a deficit.
The education group exhibited the highest growth with a 0.66% MoM increase, contributing 0.04% MoM to the inflation rate, which aligns with the start of the new school year.
The additional forex reserves are essential for maintaining the stability of the Rupiah. We expect the average exchange rate to be Rp14,980/USD, while economic growth is projected to reach 5.0% YoY this year.
We expect investment to grow by 4.80% YoY in 2H23, compared to our forecast for 1H22 at 3.60% YoY. However, it is crucial for the government to maintain political stability, as investors tend to wait and see amidst political escalation.