- The Fed maintained the Fed Funds Rate at 5.25 – 5.50% and upheld its expectation of a 75 bps rate cut in 2024, while adjusting 2025 rate cut projections to 75 bps primarily due to persistent inflation, contributing to the halved market expectations.
- The USD has not strengthened significantly due to subdued inflows and the “gold rush” in China, raising the prospect of “fiscal dominance” leading to negative real rates.
- Negative real rates may offer relief to Indonesia amid limited foreign appetite for SBN, while recent improvements in commodity prices provide temporary support for FX revenue, allowing BI to stay the course.
- Liquidity shortages persist and may escalate with the upcoming Lebaran festivities, alongside corporations’ still-strong investment needs amid weak revenue due to commodity price declines.
- The liquidity shortage and narrow trade balance in February imply wider current account deficits, though mitigated by ample FX reserves and a stable Rupiah, prompting BI to likely postpone BI Rate cuts until the latter half of 2024.
