Deutsche Bank-Asia Macro Strategy Notes Indonesia in Pictures-116821789

28/07/2025 01:33:12 GMT28/07/2025 01:33:12 GMTDeutsche BankResearchJuly 2025Joey Chungjoey.chung@db.comIndonesia in PicturesIMPORTANT RESEARCH DISCLOSURES AND ANALYST CERTIFICATIONS LOCATED IN APPENDIX 1. UNTIL 19th MARCH 2021 INCOMPLETE DISCLOSUREINFORMATION MAY HAVE BEEN DISPLAYED, PLEASE SEE APPENDIX 1 FOR FURTHER DETAILS.Joey Chung | July 2025—Indonesia’s weakening macro-outlook suggests the need for a more accommodative policy rate. The growthslowdown appears broad-based.—While Bank Indonesia has already eased macroprudential measures, real rates are still high even after 100bp ofrate cuts this easing cycle.—Indonesia’s relatively low direct export exposure to the US, at 2% of GDP, may result in a smaller impact fromUS tariffs compared to its more trade reliant peers. Indonesia has secured a trade agreement with the US,whereby the US will put a 19% tariff rate on Indonesia, but (per press reports) 40% on transshipment goods.—Government policy, particularly fiscal measures, has been a source of domestic volatility this year. Budget cutsand the launch of Danantara have pressurised the fiscal deficit wider, driven primarily by the reduction inrevenue rather than decreased spending.—However, the government has mitigated the impact from a wider 2025 fiscal deficit to headline issuance.Future deficits are also proposed to remain within the 3% ceiling, though the nature of the macro assumptionsfor 2026-2029 are reasons to stay cautious.—Key watchpoints ahead:—the contours of budget reallocation;—flows on the back of expanded exporter proceeds repatriation rule; and—Danantara’s operationalization.Summary (1)2Joey Chung | July 2025—IndoGBs could face headwinds from a potential 8-8.5% country cap allocation in the GBI-EM Index – keepingthe curve relatively steep. Market positioning has returned to neutral according to our estimates.—Despite the steepness, we prefer the <5Y part of the curve where liquidity and demand dynamics are moresupportive.—Liquidity continues to be released from SRBIs amidst reduced issuance and sizeable maturities, incentivisingbanks to reallocate funds into front-end bonds.—Meanwhile, back-end demand from lifers and pension funds remains weak.—With positioning already back to neutral in bonds, FX could be the better trade to express a bullish countryview.—There are some early indications of exporters bringing FX proceeds onshore, which warrants continuedmonitoring.—Moreover, real money additions into bonds over the past three months appear to be more FX-hedged,reducing currency risks from unwinds.Summary (2)3MacroJoey Chung | July 2025Joey Chung | July 2025High frequency indicators show growth is slowingHeadline CPI is at the bottom of BI’s target range5Indonesia’s macro outlook is weak-0.50.51.52.53.54.55.56.5Jan-16Jul-16Jan-17Jul-17Jan-18Jul-18Jan-19Jul-19Jan-20Jul-20Jan-21Jul-21Jan-22Jul-22Jan-23Jul-23Jan-24Jul-24Jan-25ID CPI yoyCore CPI yoy4.64.85.05.25.45.65.86.0Jan-22Apr-22Jul-22Oct-22Jan-23Apr-23Jul-23Oct-23Jan-24Apr-24