USD/IDR to end the year at 14600 as rupiah benefits from a gradual recovery – Standard Chartered

Handling of COVID-19 is key to the short-term recovery outlook. Meanwhile, economists at Standard Chartered maintain a positive tactical bias on IDR on UST yield stabilisation, manageable external balance and BI stabilisation policy.

Monetary and fiscal policy to stay accommodative

“We recently lowered our 2021 GDP growth forecast to 4.1% from 4.5% on a resurgence of COVID-19 cases The government tightened mobility restrictions in Java and Bali as new covid cases reached a new high, straining the health system; we estimate that every one-month period of restrictions may lower GDP growth by 0.5ppt.” 

“Vaccination rollout has been accelerated to 1mn doses per day; at the current pace, herd immunity may be reached in 2022 (versus the government’s target of end-2021). Vaccine supply will be the key determinant.”

“We forecast policy rate hikes of 25bps in Q4-2022 and Q1-2023; expect 150bps of reserve requirement ratio (RRR) hikes in H1-2022. Low inflation and negative output gap should allow BI to normalise policy gradually and synchronise it to Fed policy

“The government maintained its budget deficit at 5.7% of GDP for 2021, despite higher health and social spending. Fiscal consolidation is likely to continue as the government targets a deficit below 3% of GDP in 2023.”

“Tactical bullish view on the IDR; we maintain our year-end USD-IDR forecast at 14,600. We expect the 2021 C/A deficit to stay low at 0.9% of GDP on better global demand, a structural rise in value-added exports, and higher commodity prices.”