KEY HIGHLIGHTS
- Bank Indonesia held the BI-Rate at 5.75% (Deposit Facility 4.75%, Lending Facility 6.50%) at the 21–22 July RDG, defying a market that had priced a hike: the Bloomberg consensus looked for 6.00%. Rather than tighten further after the +100 bps burst of May–June, BI chose to defend the Rupiah with a widened package of portfolio-inflow incentives, incentives the Governor called more targeted and more effective than another rate step.
- The hold rests on an inflation read BI judges energy-driven and exogenous, not demand-led. June headline CPI was 3.34% YoY, just 16 bps below the 3.5% ceiling, but core held at 2.76% and volatile food eased to 5.58%; the entire step-up came from administered prices at 3.42% YoY as the Pertamax pass-through landed.
- The action sits in the policy package, not the rate. BI lifted the hedging-swap incentive to 12.5% and introduced a KLM money-market-deepening tranche that rewards only banks holding SRBI and SBN below an optimal threshold, making room for fresh foreign inflows. Nonresident SRBI holdings had already climbed to IDR 288.65T (27.11%) by 20 July, and Q2 booked USD 8.5B of portfolio inflows.
- The strategy de-links Rupiah defense from the policy rate, sparing credit growth of 12.67% YoY a further squeeze. Key watch: the July CPI print on 1 August, which we estimate at 3.5–3.8% YoY; a clear breach of the 3.5% ceiling, together with a firmer Fed and Brent in the high USD 80s, would move a +25 bps hike to 6.00% back to the base case at the August RDG.
Regards, Aldiracita Research
