INDONESIA: VIEW: MUFG Expects 50bp Of Easing Possibly Starting In Q2
Bank Indonesia (BI) left rates unchanged to “maintain stability” given equity volatility and the rupiah’s underperformance of other regional currencies. While BI left its 2025 growth forecast unchanged at 4.7-5.5%, global uncertainties are elevated. MUFG believes monetary policy is restrictive and expects 50bp of rate cuts this year possibly starting in Q2.
- MUFG notes that “the bank has mentioned that persistent global uncertainty requires a strong policy response. To be sure, the central bank is still looking for opportunities to cut the policy rate this year, given Indonesia’s inflation adjusted policy rate has been quite elevated. This implies that BI’s monetary policy stance is currently restrictive, which will be a drag on domestic economic activity, at a time when tariff headwinds are mounting.
- “Bank credit growth has slowed steadily to 10.3%yoy in February, from 13.1%yoy in April 2024.”
- “BI expects inflation will remain within its inflation target this year.”
- “Despite being an export-oriented economy, Indonesia won’t be totally immune to higher US tariffs on imports from China or global trade disruption. The US reciprocal tariff plan is set to be announced or implemented on 2 April, along with possibly an additional 25% sectoral tariffs on autos, semiconductors, and pharmaceuticals.”
- “It will also be difficult for BI to raise the policy rate to defend the rupiah, at a time when domestic economic growth is facing challenges from both global and domestic policy uncertainties.”
- “In terms of our USDIDR forecast, we maintain our outlook for USDIDR to rise to 16,625 in Q2, in anticipation of larger and more pervasive US tariff actions in April. The rupiah is likely to weaken further to help absorb the potential negative impact of US tariffs.”
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US TSYS: Tsys Curve Bear-Steepen, 10yr Yield Back Above 4.50%
- Tsys futures have continued to slowly sell-off throughout the session, we trade just off lows atm. Yields and the USD are pushing higher following the Fed's Waller saying recent economic data support keeping interest rates on hold, fed funds futures are still pricing in a single cut this year in September.
- TU is -00⅞ at 102-23+, while TY is -08 at 109-02+, a continuation lower would open 108-00, the Jan 16 low, and expose 107-06, the Jan 13 low and bear trigger. Key resistance and the bull trigger is 110-00, Feb 7 high.
- Cash tsys curves have bear-steepened today, yields are 1-4.5bps cheaper. The 2yr is +1.1bps at 4.270%, while the 10yr is back above 4.50%, last +3.7bps at 4.513%. The 2s10s is +2.5bps at 23.954, while the 2s30s is +3bps at 46.413.
- It is a rather quiet week for US data, fed fund futures are little changed so far this week, with the first cut pricing fully priced for the September meeting, with a cumulative 40bps of cuts priced by year end.
- Locally in Asia today, Australia's RBA cut rates by 25bps as expected, however the statement from Bullock has been somewhat hawkish, ACGBs yields are 4.5 to 5bps cheaper today.
- Later today we have Empire Manufacturing and the NAHB Housing Market Index
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.
