INDONESIA: VIEW: JP Morgan Sticks With June Rate Cut Projection
Bank Indonesia kept rates at 5.75% on Wednesday as was widely but not unanimously expected. With significant volatility in Indonesian markets this week, it put FX stability before growth. JP Morgan believes that the new exporter earnings retention rule should boost FX reserves by mid-year and allow BI to cut rates 25bp in June with possibly more easing in H2 depending on the impact to global growth from US trade policy.
- JP Morgan points out that “in the MPC statement, although acknowledging the recent decline in US yields and the US$, BI cited elevated US trade policy uncertainty as a key reason to prioritize “external resilience” and to “maintain stability”.”
- “BI continues to guide for further policy rate reductions to support economic growth. However, we think that growth is unlikely to override FX stability in the central bank’s reaction function in the near term.”
- “Despite the easing in external financial conditions since late-February, idiosyncratic developments (e.g., weaker coal prices, Jan-Feb fiscal revenue shortfall, budget reallocation, speculation of Finance Minister resignation) culminated in a steep stock market sell-off yesterday, exerting pressure on the IDR.”
- “BI’s ability to ease in the near term is severely constrained by two key reasons. One, there is significantly less organic support for the IDR via trade and portfolio flows as terms-of-trade (especially coal prices) weaken and rate differentials with the US remain unfavorable. We note that foreign holdings of SRBI have stalled since the January surprise rate cut, which have pulled down SRBI yields. And two, it may take several months for the newly implemented exporter earnings retention rule to boost gross FX reserves meaningfully due to potential US$ redemption by exporters as the previous ruling expires. The recent equity selloff also raises investor concerns on fiscal stability, among other things, making it more difficult for BI to ease.”
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RBA: Tone & Forecasts Imply Very Gradual Easing As Core Doesn't Reach 2.5%
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”.
CNH: USD/CNH Firms Amid Broader USD Gains, Dip Sub 100-day EMA Supported
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.
ASIA STOCKS: Nikkei Testing Prior Weeks Highs, Eyes 40,000 If Resistance Breaks
- 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
