● Bank Indonesia (BI) official reserve assets fell slightly by 0.1% MoM or USD0.1b to USD133.6b as of end-November 2020

− Sufficient to finance 9.9 months of retained imports and are 9.5 times the total short-term external debt.

− The decline was mainly due to the government’s external debt withdrawal and payments as well as lower taxes and oil & gas foreign exchange receipts. The reduction was also mainly due to a decrease in gold holdings (-6.7% MoM; Oct: 0.8%) but partially offset by higher foreign currency (0.2% MoM; Oct: -1.2%).

● Rupiah remained as the region’s best performer in November

− On average, the rupiah gained by 3.7% MoM to 14,236 against the greenback in November, primarily driven by vaccine optimism despite Bank Indonesia’s decision to slash its interest rate by 25 basis points (bps) to 3.75%.

− Regional currencies (monthly average): In a similar trend, most regional currencies registered a positive trend led by THB (2.6%), followed by SGD (0.9%), MYR (0.9%), and PHP (0.5%).

● Chances of another rate cut hinges on rupiah’s stability

− We maintain our 50% probability of a 25 bps rate cut in December, given the relatively less sanguine economic growth outlook and its low inflation trend.

− In addition, we believe that BI may still has room to cut its policy rate going into 2021 to further support the economic recovery. Nevertheless, the chances of another rate cut will depend on rupiah’s stability.

Source: Kenanga Research - 8 Dec 2020