March 19, 2025
The Liquidity Needed That May Save JCI

Market Commentary
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Indonesia's inflation rate has remained within Bank Indonesia's target range, creating room for a potential interest rate cut to support economic growth. With CPI moderating and core inflation staying stable, BI theoretically has flexibility to lower its 7-day reverse repo rate from its current level of 5.75% to stimulate lending and investment.

However, despite this policy space, rupiah stability remains a key concern. Global market volatility, coupled with uncertainty surrounding the Federal Reserve's rate decisions, has put pressure on emerging market currencies, including the Indonesian rupiah. A premature rate cut could risk capital outflows, weakening the rupiah further and increasing import costs.

To balance inflation control and currency stability, Bank Indonesia has chosen to keep BI7DRR at 5.75%, ensuring that Indonesia remains attractive to foreign investors while maintaining economic stability. BI is likely to wait for stronger rupiah support or clearer Fed policy direction before considering any rate adjustments.
 

Bank Indonesia acknowledges that, on a global scale, investors are increasingly inclined to allocate their investments toward fixed-income securities and gold, as evidenced by the recent surge in gold prices, including within the Indonesian market. BI views the recent significant decline in the JCI as a temporary situation, primarily driven by risk-off sentiment stemming from the US tariff policy and broader global uncertainties.
 
6 Months Gold Price Performance
 
Assuming effective implementation of the DHE SDA regulation, we anticipate a substantial increase in the outstanding amount moving forward. This development is expected to enhance Indonesia's foreign exchange reserves and contribute to greater liquidity in the domestic market.
 
Indonesia FX Reserve

If the DHE SDA program successfully boosts market liquidity, the JCI could see a bull run. Increased liquidity would attract more investors, stabilize the market, and support economic growth, driving demand for stocks.
 
Indonesia M2 Data

With stronger corporate earnings and reduced volatility expected going forward, investor confidence would rise, creating a positive cycle that pushes the index higher. Key sectors like banking is llikely to benefit, further fueling the upward trend.

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