Indonesia rates: New government leans towards continuity, global cues hold sway on markets
Indonesia Rates: Political continuity to support
Group Research - Econs, Radhika Rao23 Oct 2024
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Indonesia’s new President Prabowo Subianto took office this week, retaining many of the previous ministers in his new cabinet (Indonesia: Rate pause, new government). Onshore markets drew confidence from the reappointment of the well-regarded and seasoned Finance minister Mulyani Indrawati, who represents fiscal rectitude and discipline. Experienced names such as senior member Luhut Panjaitan, erstwhile Coordinating Minister for Maritime Affairs and Investment, will return as the chief of the new economic advisory council for the new government. Number of ministries jumped to 48, with creation of new departments including investment and downstreaming as well as housing (carved out from an existing ministry). A familiar cabinet will make it easier to build consensus, but the administration will need to deal with authority overlap and coordination hurdles with a larger team in place. Early commentary suggests that the new President is set to play a bigger role in the global diplomacy arena, besides pursuing domestic priorities around food security/ higher welfare push, anti-corruption and better governance, energy security, and encourage downstreaming activity. The underlying theme is likely to be focused on lifting growth, boosting demand, and attracting investments. There is also a proposal to form a new state-owned investment agency (centralized holding company for state investments), after discussions with the SOE ministry as well as sovereign wealth fund, INA.  

With the government formation proving to be market-neutral, global developments held a larger sway. Rupiah joined the Asian FX peers to depreciate on the back of a bid greenback, attracting BI’s intervention. Upcoming US elections add to jitters as markets eye the probability of fresh trade barriers fueling inflationary pressures and consequently a less dovish Fed. UST yields have stubbornly held above 4% this month, pulling emerging market yields higher, including IDR 10Y yield above 6.65% and short end 2Y above 6.4%, up ~20bp from lows in the past month. As US poll campaigns heat up, various private surveys point to a tight race especially in key battleground states. Volatility in the rupiah and IDR rates is bound to continue over the coming fortnight, against this backdrop and trickle of relatively firmer US data, compelling the central bank to temper its dovish talk. 


Radhika Rao

Senior Economist – Eurozone, India, Indonesia
[email protected]



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