Fithra Faisal, a senior economist from Samuel Sekuritas, will discuss what happened over the past week and provide projections for the coming week. As expected, last week Bank Indonesia (BI) decided to maintain its benchmark interest rate at 6.25%.
Looking at the conditions over the past month, the pressure on the rupiah has not been as significant as in the previous month. Last month, we saw BI forced to raise its interest rate by 25 basis points. However, throughout this month, the pressure has gradually eased. Following the announcement, the rupiah remained at a stable level, largely driven by the relatively flat, even weakening, movement of the dollar index.
Nevertheless, there is a chance that BI will raise its interest rate by another 25 basis points, either in June or July. Why is that? Because medium- and long-term pressures, particularly from the current account, show less favorable signs. Yesterday, the current account announcement revealed a deficit of 2.16 billion US dollars or about -0.6% of GDP. This marks the fourth consecutive quarterly deficit, aligning with our previous predictions. Throughout this year, the current account deficit is forecasted to be around -0.7%.
With the pressure on the rupiah likely to increase in the medium and long term, we are quite confident that BI will raise its interest rate by 25 basis points in June or July. One of the main causes of the current account deficit is the decline in commodity surpluses. For instance, coal prices have dropped by 46% year-on-year, and nickel prices have fallen by 36%. These two commodities contribute 16% and 12% respectively to total exports. This indicates that we might be at the beginning of the end of the commodity supercycle.
Therefore, the rupiah needs to be maintained by at least another 25 basis points interest rate hike. What about the market? The market remained flat last week, at a level that is neither pressured nor showing strong momentum. In the coming weeks, we expect the stock market to move in the range of 7178 to 7270, although there is potential to weaken to 7140. However, there is a greater potential to strengthen to the 7270 level.
In the bond market, movements were also relatively flat with the 10-year benchmark yield ranging between 7.67 and 7.76. The strongest momentum is in the 1-year and 3-year tenors, while the 10-year is somewhat lagging. We recommend collecting bonds with tenors of less than 10 years.
That is our prediction, forecast, and evaluation of what has happened over the past week and what will happen in the coming week. Hopefully, it is useful, and always trust your investment portfolio to us at Samuel Sekuritas. See you next week.
