● Bank Indonesia (BI) official reserve assets fell by 1.1% MoM or USD1.5b to USD133.7b as at end-October 2020

− Sufficient to finance 9.7 months of retained imports and are 9.3 times the total short-term external debt.

− The decline was mainly due to the government’s external debt payments. By component, the reduction was primarily due to a decrease in foreign currency (-1.5% MoM; Sep: -1.7%).

● Rupiah turned as the region’s best performer in October

− On average, Rupiah gained by 0.6% to 14,758 against the greenback in October, attributable to Bank Indonesia’s decision to keep interest rate unchanged, and upbeat Chinese trade figures despite uncertainties ahead of US presidential election.

− Regional currencies (monthly average): In a similar trend, most currencies charted a positive performance led by Singapore Dollar (0.5%) and Thai Baht (0.4%), whilst the Philippines Peso remained unchanged. However, Ringgit bucked the trend, edging off 0.1%.

● Chances of another rate cut depends on Rupiah’s stability

− Rupiah is expected to be one of the biggest beneficiaries among the Asian FX post-US presidential election, as fading political uncertainties with the conclusion of the US election result and China’s upbeat economic recovery could prompt higher capital inflows into riskier assets. However, the surging COVID-19 cases globally could limit the inflows.

− Therefore, we are now assigning a 50.0% probability of a rate cut at BI’s next Monetary Policy Meeting scheduled this month, as we believe BI still has more space to cut its 7-day reverse repo rate by at least another 25 bps to 3.75%. Low inflation level and the need to support economic growth as Indonesia fell into a recession (3Q20 GDP growth: -3.48%; 2Q20: -5.32%) are two other supporting reasons for a rate cut.

Source: Kenanga Research - 9 Nov 2020