- Three aspects will be of interest in 2024
- - upcoming change in political leadership,
- - expanding footprint in the value-added commodity sectors, and
- - a gradual exit from the tight policy conditions.
- USD/IDR is seen keeping to a stable 14500-16000 range in 2024
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ECONOMICS (Radhika Rao)
Indonesia’s growth was amongst the highest in the G20 countries in 1H2023, backed by capital spending, consumption, and tailwinds from structural changes in the export dynamics i.e., a rising proportion of downstream commodity output. Inflation returned to the target band in second half of the year, with higher food addressed via a mix of supply-side steps and cost of living support. The authorities have also shed the pandemic excesses, tapping strong revenues to narrow the fiscal deficit to below the -3.0% threshold, tightened policy rates to ensure price and FX stability, cessation of outright bond purchases and raised subsidised fuel prices in 4Q22 in response to fiscal pressure from elevated oil prices.
Three aspects will be of interest in 2024 – (i) an upcoming change of political leadership, (ii) expanding footprint in the value-added commodity sectors, and (iii) a gradual exit from the tight policy conditions. These will occur against the background of a fading tailwind from higher commodity prices, moderation in China as well as global growth and the need to maintain post-election economic momentum.
A change of political leadership
Indonesia is gearing up to hold its presidential elections in February 2024, after a decade under President Jokowi’s presidency. While the elections are in focus, encouragingly the political environment is a lot less volatile and more stable, compared to the 90s.
Expand footprint in the commodity value-add sectors.
Indonesia’s efforts to revitalise the manufacturing sector has found success in the metals sector, for instance the significant nickel deposits has attracted ecosystem players to build smelters as well as electric vehicle battery producers, concurrent to the authorities’ push to expand the domestic EV market and strengthen the infrastructure backbone.
Exit from tight monetary conditions
The central bank adopted a multi-pronged approach in 2023 to contain inflation, improve foreign currency liquidity (through capital management measures) and ensure financial market stability. Domestic liquidity remained ample, with only a modest passthrough of the higher BI rates onto the bank lending rates. Of late, liquidity has started to moderate as signaled by the softening credit growth and deceleration in the third-party fund growth. There is a growing debate on the timing of a start to the BI’s rate cutting cycle. We are in the camp expecting a calibrated exit plan, exhibiting a lower urgency to lower rates, to preserve financial stability.
CURRENCY (Philip Wee)
IDR Outlook – A stable 2024 outlook
In 2024, we anticipate USD/IDR to remain within the 14500 to 16000 range established in mid-2022. This expectation is in line with Bank Indonesia's projection of an average rate of 15510 for USD/IDR in 2024.
In the next few sections, we discuss the 2024 growth, inflation, macro stability markers and currency. Please download the PDF for details.
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