● Bank Indonesia (BI) official reserve assets grew by 1.8% MoM or USD2.3b to USD135.9b as of end-December 2020

− Sufficient to finance 10.2 months of retained imports and are 9.8 times the total short-term external debt.

− The increase was mainly due to the government's foreign loan withdrawal and tax receipts. The reserve level was also attributable to a broad-based improvement across components led by foreign currency (1.6% MoM; Nov: 0.2%) and gold holdings (5.7% MoM; Nov: -6.7%).

● Rupiah gained slightly in December on the back of global vaccine rollout optimism

− On average, the rupiah gained marginally by 0.5% MoM to 14,166 against the greenback in December, driven mainly by COVID-19 vaccine optimism.

− Regional currencies (monthly average): broad-based appreciation on the back of weaker USD, led by the Malaysian Ringgit (1.4%), followed by Thai Baht (1.3%), Singapore Dollar (1.1%), and Philippines Peso (0.4%).

● BI may resume monetary easing in early 2021 to aid economic recovery

− We maintain a 50% probability of another 25 bps rate cut in the near term, on the back of low inflation trend and to bolster economic recovery going forward. It has pledged to retain an accommodative stance in 2021.

− Indonesia will start a mass COVID-19 vaccination program on 13 January, which will boost optimism and the rupiah. This would further support BI to embark on a rate cut as rupiah’s stability remains a key variable for future rate decision.

Source: Kenanga Research - 11 Jan 2021