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Indonesia sees robust growth amid external challenges


Jul 25, 2013
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Indonesia sees robust growth amid external challenges​

Indonesia’s growth engine is motoring along but can it continue amid so many global headwinds? We take a look



Jakarta, the capital of Indonesia

Steady as she goes​

Indonesia's growth performance has been a model of consistency despite global headwinds. Outside Covid 19 in 2020 and the base effect-induced bounce in 2021, Indonesia has managed to post a steady pace of roughly 5% year-on-year growth dating as far back as 2016.

Growth remains heavily reliant on household consumption (54% of GDP) although Indonesia’s growth momentum has received a lift from capital formation and from exports during select periods. In 2022, Indonesia enjoyed a banner year for trade with the export sector benefiting from a sharp uptick in global energy prices.

For 2023, with coal prices moderating, Indonesia has relied more heavily on domestic household consumption which saw a modest rebound due to softening inflation in the first half of the year. And despite a challenging external environment and an upcoming general election in the first quarter of 2024, we expect growth to motor along at the steady pace of 5% YoY with economic growth delivered by still solid household spending and robust capital formation.

Household consumption still main driver for growth​


Household spending takes on the heavy lifting in 2023​

Domestic consumption posted slower growth at the end of 2022 with households cutting back on expenditures amid above-target inflation. However, with inflation moving back within target by mid-2023, we’ve seen household spending recover and up by 5.9% YoY as early as the second quarter of 2023.

Quicker spending was reported across almost all subsectors outside transport with a notable pickup for food & beverage (3.8% YoY), clothing (7.0% YoY), household equipment (3.8%), health & education (5.1%), restaurants (6.7% YoY) and other services (3.7% YoY).

We can expect household spending to remain robust in the near term for as long as inflation remains well-behaved and within the central bank’s inflation target.

Household spending hit a snag during high inflation episode​


Inflation back within target but food price spike bears watching​

We have seen how sensitive household spending has been to bouts of high inflation. As mentioned earlier, inflation has moved back within Bank Indonesia’s target of 2-4% YoY with the latest inflation report showing headline inflation down to 3.3% YoY and core inflation at 2.6% YoY.

The recent uptick in global food inflation, however, could nudge headline inflation higher, closer to the upper end of the BI's target. Food inflation is on the uptrend, rising to 3.5% YoY and driven partly by surging rice prices (13.8% YoY) due to high global prices for the staple. The El Nino episode hit rice production in the region, forcing domestic rice prices to touch levels last seen in 2012.

So far, despite the sharp uptick in food inflation, headline inflation remains within target. However, a sustained acceleration in food and energy prices could eventually sap some momentum from the all-important household spending.

Recent food price spike is worth monitoring​


Bank Indonesia hopes to support growth via lending programmes​

BI raised its policy rates aggressively to support the Indonesian rupiah in a bid to deal with above-target inflation back in 2022. Overall bank lending is slowing due to BI’s tightening cycle. In terms of the sectoral breakdown, the top three sectors in terms of lending are financial & insurance activities, wholesale & retail trade and mining & quarrying.

In order to sustain its support for growth, however, BI opted to implement loan programmes designed to help stimulate lending to pre-identified key sectors.

BI announced incentives to lower the minimum reserve requirement for banks that lend to four “priority sectors”. These sectors include 1) the mineral and mining industries (including manufacturing activities related to mineral mining), 2) non-mineral industries (including manufacturing activities related to non-mineral mining), the housing sector and the tourism sector. Furthermore, additional incentives will be granted to banks that lend to all four priority sectors as well as satisfy the criteria for macroprudential inclusive financing ratios and green financing as required by the central bank.

With BI’s incentive programme for lending, we could see more funds channelled to manufacturing, other services and the housing sector which would be supportive of the growth outlook despite elevated borrowing costs.

As bank lending slows, BI counters with incentive programmes​


Export sector remains challenged in 2023​

One sector, however, that has not contributed to growth momentum this year is the trade sector. Exports, which had been a key source of economic expansion in 2022, have reversed into contraction. After a banner year supported by elevated energy prices, the export sector has struggled in 2023 and has not been able to provide the same kind of lift compared to last year.

Exports of mineral fuels (coal) and animal & vegetable oils (palm oil) have been the heaviest drags on the export sector with only exports of steel & iron plus road vehicles reporting better outbound shipments year to date. We can expect the export sector to remain subdued in the near term or until we see a substantial rebound in global demand. Until then, this sector will likely be a drag on the growth outlook in terms of its negative contribution to net exports and to the industrial sector.

Export boom fades quickly in 2023​


Rupiah likely pressured for rest of year, BI to track Fed moves​

The IDR is currently the only Asian currency to be up for the year, currently stronger by 0.8% versus the dollar. However, the currency has been pressured of late after support delivered by the trade surplus faded substantially throughout 2023.

With less support from the trade surplus at a time when the Federal Reserve has stayed relatively hawkish, the rupiah has come under pressure, with the currency retreating by roughly 1.6% in September. With global demand for exports likely soft for the rest of the year and into 2024, we do not expect a quick turnaround for the IDR with the central bank likely very active in the foreign exchange market to prevent a more pronounced depreciation.

Given BI’s priority of retaining support for the IDR, we expect the central bank to keep rates untouched for as long as the Fed is on hold. However, should the Fed decide to hike rates again in the next few months, we feel that BI will have no choice but to follow suit with Governor Perry Warjiyo possibly matching any Fed increase to maintain what is an already uncomfortably tight interest rate differential (25bp).

Key support for IDR has waned this year​


The 2024 election is fast approaching​

Indonesia will conduct general elections on 14 February 2024. Incumbent President Jokowi is not allowed to seek a third term. There are three main candidates to replace Jokowi, all of whom have ties to the current president.

Prabowo Subianto, who ran against Jokowi in 2014 and 2019, is the country’s current defence minister. Prabowo has vowed a platform that promises continuity and recently received the backing of two additional parties, solidifying his support, with four parties (46% of parliament) now supporting his bid for the presidency. Recent opinion polling shows him leading or in second place for the presidency.

Ganjar Pranowo is the governor of Central Java, a position previously held by Jokowi prior to his election to the presidency. He is backed by PDI-P, Indonesia’s largest party which is the same political party that backed Jokowi. Although Jokowi has yet to endorse a particular candidate, the PDI-P believes Jokowi would support Ganjar’s bid. Recent opinion polling shows him leading or in second place for the presidency.

Lastly, Anies Baswedan is a former governor of Jakarta who was also the campaign spokesperson for Jokowi’s 2019 election bid. He also served as Jokowi’s Minister of Education and Culture indicating his close ties to the president. Anies, however, has fared less favourably in recent polling, consistently polling third behind Prabowo and Ganjar.

With barely four months to go before the February 2024 election, the top three candidates have yet to select their running mates or announce official campaign platforms. As such, we could still be in for changes in poll results in the run-up to the election but all three candidates appear to be presenting themselves as continuity candidates given President Jokowi’s still-solid approval rating.

Challenges remain but steady 5%+ growth seen this year and next​

The global landscape presents substantial headwinds to Indonesia’s growth momentum. Soft demand and moderating prices for palm and coal have forced exports into a deep contraction for the year. With exports fading, the trade surplus has in turn also receded, resulting in the loss of a key support for the IDR in 2023.

Meanwhile, anxiety over Fed policy has forced up global bond yields, exerting additional pressure on the currency, which is down almost 1.6% for September. A weaker currency could exacerbate imported inflation pressures which in turn could dent household consumption should headline inflation accelerate past BI’s inflation target.

Lastly, a potential Fed rate hike could prompt BI to hike its own policy rates, which could sap even more momentum from flagging bank lending.

Despite these challenges, however, we believe that Indonesia will manage to post full-year growth of 5.1% YoY. Growth momentum will be safeguarded as household spending remains robust despite a projected pickup in prices. We believe a potential acceleration in price pressures due to rising food and energy prices could be offset by subsidies to key sectors which could blunt the impact of faster inflation on household spending.

Meanwhile, capital formation is also projected to remain in expansion mode even if BI hikes policy rates to track a Fed increase. We believe the BI will lean heavily on incentives for lending to key select sectors to ensure growth remains on track or at the very least is not heavily impacted by tightening liquidity conditions.

Lastly, we could also expect economic activity to accelerate in the months leading up to the general elections scheduled for February 2024. Thus we expect growth to settle at 5.1% for 2023 and 5% for 2024 with Indonesia able to sustain its steady pace of expansion despite substantial external headwinds.

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Indonesia Finance Minister predicts smaller 2023 budget deficit​


Oct 25, 2023, 5:43 PM


JAKARTA - Indonesia will likely book a smaller-than-expected budget deficit this year, even after taking into account President Joko Widodo's new incentives to boost growth, which will be rolled out later in 2023, its finance minister said on Wednesday.

Without providing a new figure, Sri Mulyani Indrawati told a press conference the budget deficit for the whole of 2023 will be below her latest estimate of 2.3% of gross domestic product.
In the January to September period, the budget had a surplus of 67.7 trillion rupiah ($4.27 billion), or 0.32% of GDP, on strong revenue collection and slow spending.

However, Sri Mulyani said spending is due to rise significantly in coming months to pay for upcoming bills, as well as for the government's new fiscal incentives.

"The budget deficit outlook is smaller because revenues have been higher than target and we will monitor global condition to carefully manage our debt," Sri Mulyani said.

Jokowi, as the president is popularly known, on Tuesday launched measures to support growth in Southeast Asia's largest economy, including a tax incentive for homebuyers, extending a rice handout programme and increasing cash handouts for millions of households to cope with rising food prices.

The policy package is worth a total of 13.39 trillion rupiah for the fiscal years of 2023 and 2024, Sri Mulyani said.

The measures will add 0.06 percentage point to 2023 GDP growth and 0.13 percentage point to 2024 GDP growth, she added.

The minister predicted 2023 growth to be 5.1%, slowing from 5.3% last year. The government has set a growth target of 5.2% for 2024.

Her policy to finance this year's budget deficit, which includes bond auctions, will be done in a measured way for the remainder of the year, Sri Mulyani said, adding she will also look to raise some cash to provide a buffer for 2024. REUTERS


Malaysian and Thai economies suffer as currencies slide against dollar​

Asean depreciations bring high import costs and increase inflation risks



South-east Asian currencies are trading near their lows for the year against the surging dollar, with the Malaysian ringgit and Thai baht leading the decline, as governments and businesses in the region worry about the economic impact of the depreciation.

The cheaper currencies are bringing higher import costs. Regional exporters, on the other hand, are struggling to take advantage of the slide, as uncertainties prevail in big markets, especially China.While a weaker currency generally benefits exporters and tourism, a sustained fall risks triggering capital outflows.

The recent uptick in oil prices has also raised fears of faster inflation.“A combination of a higher dollar, a weaker Chin[ese economy] and higher oil prices [has] become a dangerous cocktail for most of the ASEAN economies,” Charu Chanana, market strategist at Saxo Markets in Singapore, told Nikkei Asia.

The ringgit and baht are the worst performers against the dollar in south-east Asia this year, falling 6.9 per cent and 4.4 per cent, respectively, through October 13. The Vietnamese dong is down 3.4 per cent, while Singapore’s dollar and Indonesia’s rupiah have held up relatively well, slipping 2.1 per cent and 0.7 per cent, respectively.

The broad depreciation comes on the back of strong US economic and wage growth, which has pushed Treasury yields and the dollar higher. The resilient US economy has led some investors to conclude the Federal Reserve will keep interest rates higher for longer to fight inflation.

Higher interest rates in the US attract investors seeking better returns, encouraging capital outflows from south-east Asia and weakening regional currencies. In particular, the Malaysian ringgit hit a 10-month low of 4.729 against the dollar on October 4.

Malaysia’s currency has been hit by a widening interest rate gap with the US. On the back of moderating inflation, at 2 per cent in August, Malaysia’s central bank has tightened only once this year, in May, when it lifted the benchmark rate a quarter point to 3 per cent. By contrast, the Federal Reserve has lifted the US overnight rate to between 5.25 and 5.5 per cent.

At the same time, the ringgit has been hurt by Malaysia’s greater exposure to the Chinese economy, which is seeing disappointing growth. “The Malaysian ringgit moves in lockstep with the Chinese yuan,” said CIMB Group’s Intan Nadia Jalil.

Weaker prices for commodities such as palm oil and natural gas, which make up a big share of Malaysian exports, are another negative factor.

Malaysia’s prime minister Anwar Ibrahim, who also serves as finance minister, on October 10 said the government was “exploring initiatives” to trade in local currencies to reduce its reliance on the dollar for trade and investment.

“To entirely end reliance on the US dollar will be difficult, but Malaysia will be more active and aggressive in the use of the ringgit” for trade, Anwar told the parliament. Malaysia has started using local currencies in transactions with Indonesia, Thailand and China.


Concerns in Malaysia about a sharp dollar rally are echoed by neighbours such as Thailand, where the local currency hit a 10-month low of 37.07 baht a dollar on October 3.

Analysts at the Kasikorn Research Center said foreign investors have also sold the baht due to a lack of confidence in the economy and concerns over Thailand’s fiscal discipline, particularly the government’s contentious digital money handouts, which it is estimated will create up to 560bn baht ($15bn) in new public debt.

The Thai currency is not only weaker but also volatile, raising concerns for exporters, which are unlikely to be able to take advantage of the depreciation. The volatility of the baht makes exporters reluctant to quote prices as they fear incurring exchange rate losses.

The Joint Standing Committee on Commerce, Industries and Banking, which groups some of Thailand’s largest industries, said the government “should try to stabilise” the local currency in an acceptable range that will support exports.

In Indonesia, a weaker currency typically helps export-oriented companies such as coal miners and palm oil producers. But Indonesia’s trade surplus has trended lower this year, undermining support for the rupiah.Although Indonesia posted a $3.12bn trade surplus in August, exports fell 21 per cent in value terms from a year earlier to $22bn, weighed down by lower commodity prices and weaker demand from China.

Meanwhile, the Philippine central bank has not changed its tone on the peso’s depreciation, as central bank governor Eli Remolona believes a hawkish stance will benefit the local currency. The central bank has traditionally preferred a weak peso because it raises the value of remittances from overseas workers.

At the same time, a weaker currency means disproportionately higher costs for importers, especially for the energy and other inputs needed to manufacture products for export.Vietnam, for example, has the highest rate of imports and exports as a share of gross domestic product in the region, after Singapore.

Analysts say the higher costs hurt even more now because this is a key period for imports, which have been rising steadily since the summer as manufacturers gear up for the Christmas season.Despite this, the Vietnamese central bank became the first in Asia to cut interest rates this year. It began doing so in March in hopes of “removing the difficulties for the economy.”

Vietnam wants to encourage lending and business activity amid lukewarm global demand for its exports, a property crisis and mass lay-offs.“While these measures were introduced to bring relief to the property sector, there is a risk of a knock-on effects on energy imports,” said Nick Ferres, chief investment officer at Vantage Point Asset Management, adding that coal prices were especially affected. “We see the energy sector in Vietnam feeling the pinch from high exchange rates, with a possibility of passing on these costs to consumers.”


Richard Bullock, a senior research analyst at Newton Investment Management, said for now, he believed the currency declines were “manageable” for the region. “Balance of payments are generally healthy across the region, and foreign exchange reserves are sizeable enough to cushion short-term capital outflows,” Bullock told Nikkei Asia.

However, higher oil prices could weigh on regional economies, which have been experiencing lower inflation than in the US and Europe. In September, Brent crude traded above $90 a barrel for the first time since November 2022, triggered by supply cuts from Saudi Arabia and Russia.In a research note on October 3, Morgan Stanley said it expected oil prices of more than $90 a barrel through the middle of 2024.

The investment bank, which has stayed bearish on Asian currencies, warned the higher oil price “could have a decent impact” on the region’s inflation.“The market might underestimate the risk of Asian central banks turning more hawkish should inflation surprise the market on the upside going into 2024,” the note said.

Additional reporting by Norman Goh in Kuala Lumpur, Apornrath Phoonphongphiphat in Bangkok, Lien Hoang in Ho Chi Minh City, Ramon Royandoyan in Manila, Erwida Maulia in Jakarta and Echo Wong in Hong Kong

Indonesia's 2045 vision

100 years after the independence declaration in 17 August 1945


HSBC economist shares outlook for ASEAN economies​


Indonesia Flooded with Rp1,053 Trillion Investment in 9 Months, Rp1,400 Trillion Target Achieved?​

https: img.okezone.com content 2023 10 20 320 2904890 Indonesia-kebanjiran-investasi-Rp1-053-trillion-dalam-9-bulan-target-Rp1-400-trillion-achieved-nKg5la5h1O.jpg
Indonesia Flooded with Investment (Photo: Okezone)

Ikhsan Permana, MNC Portal ·
Friday, October 20, 2023 11:20 AM

- Indonesia is flooded with investment of IDR 1,053 trillion in 9 months or the January-September 2023 period. This investment figure is around 75.2% of the target of Rp1,400 trillion.

"This year, our target is IDR 1,400 trillion. Alhamdulillah, it has reached IDR 1,053.1 trillion, growing 18% compared to last year, and the achievement has been 75.2% of the 2023 target of IDR 1,400 trillion," said Minister of Investment/Head of BKPM Bahlil Lahadalia in a press conference for Investment Realization in the Third Quarter of 2023 at the Ministry of Investment/BKPM, Jakarta, Friday (20/10/2023).

According to Bahlil, this investment figure shows that investor interest in investing in Indonesia is quite high even though it is entering the political year. Investors, Bahlil said, are no longer wait and see, but aggressive.

"So if someone says in a political year there is a wait and see, it's normal, but this is not wait and see, but they are aggressive for how to realize the investment they have committed. So our economic stability is quite good even in the political year," he said.

It is known that the Ministry of Investment/Investment Coordinating Board (BKPM) recorded that investment realization in the third quarter of 2023 reached IDR 374.4 trillion. This figure grew 7% q to q and year on year grew 21.6%,"

If detailed, the realization of investment originating from foreign direct investment (PMA) in the third quarter of 2023 is IDR 196.2 trillion or 52.4%. Meanwhile, Domestic Investment (PMDN) reached Rp178.2 trillion or 47.6%.

Meanwhile, investment realization from FDI in January-September 2023 was recorded at IDR 559.6 trillion or 53.1%. Investment from PMDN amounted to Rp 493.5 trillion or 46.9%.

When viewed from the distribution, investment realization outside Java in the third quarter of 2023 still dominates with a contribution of IDR 190.9 trillion or 51%, while in Java Island it is IDR 183.5 trillion or 49%.

Overall, throughout 2023, until September, investment outside Java amounted to IDR 545.8 trillion or 51.8% and investment in Java Island amounted to IDR 507.3 trillion or 48.2%.

"So 3 years in a row outside Java Island is more. So when I finish being a minister, if people ask me if Bahlil do you work for outside Java? Ah, I want to tell you that it has been 3 consecutive years (investment) outside Java is higher," he said.


Indonesia raises $2 bln after pricing 5-yr, 10-yr US dollar sukuk at 5.4%, 5.6% -term sheet​


November 08, 2023 — 12:05 am EST

Written by
Murdoch and Yantoultra Ngui for Reuters ->

SYDNEY/SINGAPORE, Nov 8 (Reuters) - Indonesia has raised $2 billion after pricing on Wednesday a five-year $1 billion U.S dollar sukuk or Islamic bond at 5.4% and a 10-year $1 billion green U.S dollar sukuk at 5.6%, according to a term sheet reviewed by Reuters.

Indonesia launched on Tuesday the five-year U.S dollar sukuk with initial price guidance in the 5.65% area and the 10-year green U.S dollar sukuk in the 5.85% area.

Indonesia intends to use the net proceeds from the five-year sukuk to meet part of its general financing requirements, according to the term sheet.

It will invest an amount equal to the net proceeds from the issue of the 10-year green sukuk exclusively to finance or refinance expenditure directly related to "green and blue focus" projects, the sheet showed.

Demand for both bonds amounted to $5.6 billion, a separate term sheet reviewed by Reuters showed.



World Competitiveness Ranking​

The IMD World Competitiveness Yearbook (WCY), first published in 1989, is a comprehensive annual report and worldwide reference point on the competitiveness of countries. It provides benchmarking and trends, as well as statistics and survey data based on extensive research. It analyzes and ranks countries according to how they manage their competencies to achieve long-term value creation. An economy’s competitiveness cannot be reduced only to GDP and productivity because enterprises also have to cope with political, social and cultural dimensions. Governments therefore need to provide an environment characterized by efficient infrastructures, institutions, and policies that encourage sustainable value creation by enterprises.

The IMD World Competitiveness Ranking emphasizes a long-term trend highlighted in past editions – that the countries on the top of the list each have a unique approach to becoming competitive.

The Yearbook provides extensive coverage of 64 economies, chosen based on the availability of comparable international statistics and our collaboration with local Partner Institutes, which contribute to the collection of survey data and ensure that all data are reliable, accurate and as up-to-date as possible. This year, we have the privilege of collaborating with a unique global network of Partner Institutes in 57 countries.

The World Competitiveness Ranking is based on 336 competitiveness criteria selected as a result of comprehensive research using economic literature, international, national, and regional sources, and feedback from the business community, government agencies, and academics. The criteria are revised and updated regularly as new theories, research, and data become available and as the global economy evolves.

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Alhamdulillah, Exxon Mobile will invest 15 billion USD in Indonesia inshaAllah for green petrochemical and carbon capture storage (CCS).


Exxon Mobil to Build $15b Green Petrochemical Refinery in Indonesia​

Jayanty Nada Shofa

November 17, 2023 | 10:02 am


President Joko "Jokowi" Widodo meets Exxon Mobil Corporation chairman Darren Woods in San Francisco on Nov. 13, 2023. (Photo Courtesy of Presidential Press Bureau)

Jakarta. American oil and gas giant Exxon Mobil is planning to invest up to $15 billion in Indonesia for a green petrochemical refinery and carbon capture storage (CCS) facility, according to President Joko “Jokowi” Widodo.

Jokowi earlier this week met Exxon Mobil Corporation chairman Darren Woods in San Francisco. The planned projects -- which are expected to slash Indonesia’s carbon emissions -- were high up on the agenda during the meeting.

“I appreciate the cooperation plan to build a green petrochemical refinery and a CCS facility. The projects are worth up to $15 billion,” Jokowi was quoted as saying in a recent press statement.
“I’m pleased to hear that the CCS facility will be the largest in Southeast Asia. Exxon’s petrochemical complex is also expected to be one of the most advanced in the world,” Jokowi said.

Jokowi also asked Exxon Mobil to take part in building Indonesia's renewable energy and green infrastructure in Indonesia, including its new capital Nusantara. Earlier this month, Jokowi said that the project had attracted 320 letters of intent from both domestic and foreign investors so far.

According to government estimates, it takes approximately $33 billion to build Nusantara from scratch. However, Indonesia will rely on public-private partnerships to cover 80 percent of the costs, while the remaining 20 percent will come from the state budget, according to Jokowi.

Government data shows the US became the fifth largest foreign investor in Indonesia in the first nine months of 2023. American investment in Indonesia totaled $2.4 billion over the said period, just behind Japan (around $3.3 billion).

Indonesia posts smaller current account deficit in Q3 as export demand picks up
By Stefanno Sulaiman / Reuters
21 Nov 2023, 04:33 pm

JAKARTA (Nov 21): Indonesia's current account deficit narrowed in the third quarter as demand for exports recovered, the central bank said on Tuesday, with most economists expecting the central bank to leave interest rates unchanged this week, as external balances improved.

The Southeast Asia's largest economy posted a US$0.9 billion deficit in the third quarter, equivalent to 0.2% of gross domestic product (GDP), showing a marked improvement from the second quarter, when Indonesia registered its first quarterly deficit in two years.

Bank Indonesia (BI)'s revised data for the second quarter deficit was at US$2.2 billion, equivalent to 0.6% of GDP, the central bank's revised data showed.

Indonesia's monthly trade surpluses have been declining in value this year, as prices of its top commodities like coal and palm oil weakened compared to a year ago.
BI noted a recovery in demand for iron and steel exports, amid weakening global commodity prices.

The deficit in services also decreased in the third quarter, helped by the tourism sector's post-pandemic recovery, BI added.

A Reuters poll showed on Tuesday that 27 of 31 economists expected BI to keep its benchmark key interest rate unchanged at 6.00%, when the central bank's two day policy review wraps up on Thursday. The remaining four predicted a quarter-percentage-point hike to 6.25%.

In October, BI unexpectedly hiked the benchmark interest rate by 25 basis points (bps) to 6.00%, with focus on rupiah stability, taking its total rate increases since August 2022 to 250 bps.

Enrico Tanuwidjaja, a UOB economist, was among the outliers expecting BI to raise rates to keep the rupiah stable, though he viewed the smaller current account deficit as a "good development".
"Our view is still for BI to deliver a 25 bps rate hike this week, underpinned by a likely case of the Fed remaining hawkish, expectations of upside inflation risks, and wider yield gap," he said, adding a forecast of another 25 bps rate hike in December, taking the terminal rate to 6.50%.

Aside from current account, the country's financial and capital account deficit also shrank to US$0.3 billion in the third quarter, from a deficit of US$4.8 billion in the second quarter, due to higher foreign loans for companies, offseting the capital outflow, BI said.

The smaller deficits in both current and financial accounts reduced the balance of payments deficit to US$1.5 billion in the third quarter, from US$7.4 billion in the second quarter.
BI has forecast this year's current account to be between a surplus of 0.4% and a deficit of 0.4%.

The rupiah strengthened 0.03% to 15,435 per US dollar by 0433 GMT on Tuesday.


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