INDONESIA: VIEW: JP Morgan Sticks With June Rate Cut Projection

The RBA cut rates 25bp to 4.10% as was widely expected and framed it as a reduction in restrictiveness but it appears to have been a very cautious and reluctant move. Reading between the lines, the Board warns us not to necessarily expect back-to-back easing. It points out that “upside risks remain” and that easing too quickly could “stall disinflation”. As expected it eased as it was more confident inflation would sustainably move towards the mid-point of the band (which is no longer in its forecast), but it was more hawkish on the labour market and revised down its productivity expectations.

• The updated staff projections showed little change to the outlook beyond Q2 2025. The most noteworthy revision is that it doesn’t have underlying inflation at the 2.5% band mid-point over the forecast horizon which has been extended to Q2 2027. It now stabilises at 2.7% up from 2.5% in November. Only Q2 2025 was revised lower materially by 0.3pp to 2.7%.
• Revisions to the cash rate were minimal and the path still suggests the OCR around 3.6% by year end.
• In the near-term growth was revised lower but is little changed from Q4 2025 on. Private consumption was shifted down over the next 18 months, while public demand was revised up again.
• As expected, the unemployment rate was taken down and is now 4.2% by end-2025 down 0.3pp, it stabilises here. Employment growth is stronger and end-2025 wage growth 0.2pp higher at 3.4%. It noted that the labour market had “tightened a little further in late 2024” and that labour shortages are still impacting “a range of employers”
• “The Board remains cautious on prospects for further policy easing” and on the outlook with “risks on both sides”.

USD/CNH has drifted higher in the first part of Tuesday trade. We were last near 7.2760. We are sub the 20 and 50-day EMA resistance points, both in the 7.2850/00 region. However, the recent test sub the 100-day EMA has proven false at this stage. This support point, which also had some false breaches in Jan, rests close to 7.2600.

• Yuan weakness is also evident onshore, but the CNH-CNY basis is minimal. Broader USD trends are weighing, with the BBDXY index up a little over 0.20%, the DXY, +0.35%. CNH is lagging these trends though, only off near 0.15% at this stage.
• This fits with the low beta with respect to USD moves.
• China equities are mostly higher, although Hong Kong markets, particularly on the tech side are outperforming. This follows the recent meeting between China President Xi Jinping and key private sector business leaders, with hopes of closer ties between this sector and the government.
• The equity outperformance is not aiding CNH so far today, with broader USD trends/Higher Tsy yields offsetting.
• Tomorrow on the data front we have Jan home prices. 

• Japan's Nikkei 225 is testing last weeks highs (39,581), with a break here opening a move to retest the 40,000 mark, a level the index has struggled to hold above since July 2024.

Chart. Nikkei 225 Has Struggled At 40,000