● Bank Indonesia (BI) official reserve assets declined by USD1.3b to USD130.4b as of end-February 2020

- The reserve assets remained high and sufficient to finance 7.7 months of retained imports and is 7.4 times the total short-term external debt.

● The decline in official reserve assets was attributable to lower foreign currency reserves partly associated to government’s external debt payments

- Foreign currency reserves (-USD1.4b or -1.2% MoM to USD123.0b): sharpest drop in 5 months.

- Gold (+USD0.2b or 4.5% MoM to USD4.1b): highest level recorded since 2013.

- Other components: IMF reserve position, SDRs, and others remained unchanged.

● Rupiah weakened in February amid fears of COVID-19 outbreak

- The local note was the worst performing currency in Asia, it plunged by 4.6% MoM against USD to 14,318, erasing 1.5% gains recorded in the previous month. Rupiah will continue to be pressured on the back of the riskoff mode sentiment triggered by the virus outbreak. However, the low-interest-rate environment in the advanced and regional economies, as well as the government’s pledge to provide a second stimulus package to counter the virus impact, may continue to support Rupiah from further setbacks.

- Regional currencies: In a similar direction, the Malaysian Ringgit depreciated by 2.8% MoM, followed by Singapore Dollar (-2.0%), Thai Baht (-1.0%) and the Philippines Peso (-0.2%).

● BI has room to lean towards more monetary easing to bolster growth

- Downside risk remains, mainly due to the global geopolitical unrest and the expectation of continued growth slowdown in key major trading partners due to the impact of the COVID-19 outbreak.

- BI recently trimmed FX reserve requirement ratios from 8% to 4%, effective March 16, which is expected to release an additional USD3.2b into the banking system. Nonetheless, the house expects BI to continue its easing cycle and slash the 7-day reverse repo rate by 25-50bps from 4.75% in the upcoming Board of Governor meeting. BI has made a clear stance that its monetary policy measures are directed to support economic growth.

Source: Kenanga Research - 9 Mar 2020