00:00 I will come back to see today business. The Feds prefer to inflation gorge known as the
00:07 personal consumption index or PCE in February was in line with market estimates as it came
00:13 in at 2.5 percent year on year nearing the Fed's inflation target of 2 percent. Nonetheless
00:21 the Fed still remains cautious of the central bank's chairman Jerome Powell said last Friday
00:26 that they will still need to see more data that inflation is sustainably dropping to
00:32 their 2 percent target. However this uncertainty regarding the Fed's rate cuts has seen capital
00:39 outflow from Indonesia based on data from Bank Indonesia from March 25th to 27th 2024
00:48 non-residents in the domestic financial market recorded a net sale of 1.36 trillion rupiah
00:55 non-residents bought 0.79 I repeat that 0.97 billion rupiah in the bonds market but sold a
01:02 net of 1.59 trillion rupiah in the stock market and 0.74 trillion rupiah in the Indonesian
01:09 rupiah securities or SRDI. We don't see it as likely to be appropriate that we would begin to
01:20 reduce interest rates until the committee the federal open market committee is confident that
01:27 inflation is moving down to 2 percent on a sustained basis and what do we need to get
01:32 that confidence it's just more good inflation readings like the ones we were getting last year.
01:36 The uncertainty surrounding the Fed's timeline for the rate cuts has stirred some ambiguity
01:42 in the markets however the anticipation of those cuts has also led to some bullish runs
01:48 and to dive deeper into the Fed's potential rate cuts and market reactions. Joining me now in the
01:53 Bank Mandiri is Bank Mandiri's chief economist Mr. Andri Asmoro. Hi thank you for coming.
01:59 Thank you for inviting me. Yeah of course it's a pleasure as well. Yes. So Mr. Andri Asmoro how do
02:05 you assess the stance of the federal research on this interest rate cut if we see the U.S.
02:12 condition in its economy and indicators as well as we saw the PCE that was just recently released.
02:17 Yeah I think it is very interesting that the market now is very cautious on the timing of
02:25 the rate cut actually regarding to what the U.S. economy right now the data is getting stronger or
02:32 you know there are there are no major changes in in the pace of economic data in the U.S.
02:40 So I put some keywords from your explanation before that the market is very cautious on what's
02:48 the future data of the U.S. for example growth and also the job opportunity for the U.S.
02:57 So of course the Fed will assess what's the future inflation trajectory going forward. Yeah if there
03:05 are no significant changes for example or down what trend of the U.S. inflation we are going
03:13 forward to towards the 2 percent I believe market will assess that the timing of the rate cut will
03:19 be much longer than what they have already or previously expected. The market previously
03:25 expected that the Fed will cut in March actually but the Fed as we already know that the Fed holds
03:32 the benchmark and now the biggest changes in Korea according to market is that the Fed will cut
03:38 the benchmark rate in June actually. So once again like what Jerome Powell mentioned
03:46 yeah in their press conference that it always be depend on the data. Yeah it always depend
03:54 on the data whether the U.S. economic data is getting for example stronger or getting weaker
04:00 for example it will affect on the U.S. inflation trajectory going forward. Right so it's at the
04:05 same time they want to have inflation rate going down but they want to as well hold and wait and
04:11 see as well. Yeah. So Fed themselves have their dot plots of three times of interest rate cuts
04:18 but the U.S. inflation is proving to be quite sticky. Yeah. Stickier inflation. It was previously
04:24 on a downward trend. So what is actually the U.S. inflation as well as economies condition right now?
04:31 The U.S. economy is relatively mixed actually. They're posted with a mixed figure. If we take
04:37 look on the for example from the manufacturing data their manufacturing index right now is
04:43 actually exceeding level of 50 means that their manufacturing index now in the acceleration
04:50 territory. So it's at the highest in the last I think 12 months. So it reflects that the U.S.
04:57 economy is getting stronger if we take a look on the manufacturing side. But coming from the
05:01 retail and individual for example there are also weaker data from the U.S. Yeah. So this this mixed
05:09 data quite giving a constant for the market right now. Whether the Fed will still stick on you know
05:16 their plan for example to to to have like a three rate cut this year for example or only two or even
05:23 even more. For example. So that's actually becoming the major concern why the U.S. dollar for example
05:30 right now is relatively getting stronger compared to the all major currency and also emerging
05:37 markets currency right now. Right. So the the big key I think whether the inflation subdue very fast
05:46 to their target towards their target to 2 percent or no. In my view I think it's very difficult that
05:53 the inflation in the U.S. inflation rate to reach 2 percent. I think by the second half they will be
05:58 nearing to 2 percent not that is not 2 percent only I think to 2.5 percent. Okay. Now now we see
06:07 the geopolitical factors going on the war in Palestine. So do you think these factors will
06:14 affect the inflation or is there any other external factors that are at play before the Fed actually.
06:22 Yeah sure. There are three factors that affect the global economic situation including U.S. right now.
06:28 Number one of course the geopolitical factors. The geopolitical factors will affect on the
06:33 on the global logistic costs the global energy and also food prices. And last but not least of
06:41 course the outlook of the global economic growth of course. So there will be any or many pressures
06:48 coming to the U.S. and also emerging market for the U.S. for example the rising oil and also food
06:54 prices will also affect to their inflation inflationary outlook in domestic for example.
07:01 So what we had in or what we saw in 2022 for example when the Russia attacked Ukraine for
07:07 example at that time and the fuel price domestic their domestic fuel prices was increasing quite
07:14 significant and that makes their inflation domestic inflation it was increasing quite
07:18 significant. So it can be happening again this year because of the effect of the geopolitical
07:26 situation right now. It might expand actually. Exactly. So for example if the the the Middle East
07:32 tension is getting you know worse it will affect on that that logistic and also the fuel price.
07:40 Yeah. So you mentioned about there are possibilities that the rate cuts might only happen once or even
07:46 none at all. What factors do we look out for that could lead to this. I think the one and only
07:52 factors that will affect on the weather the Fed will cut three two or no rate cut for example this
07:58 year is their inflation that inflation inflation the future inflation that I owe for the U.S.
08:08 whether it will be persistently in the downtrend or no. Yeah. Closing to 2 percent or no. If for
08:16 example inflation stubbornly stay at two point eight point nine percent for example in the medium
08:24 of the of this year for example in the mid this year it will be very difficult for example the
08:29 Fed to cut rate as aggressive as this year. The good thing from the Fed from March meeting is that
08:36 they don't change or they didn't change the trajectory or the guidance means that they still
08:41 keep three times three times cut rate. Yeah. And also not the three time cut rate in 2025 and another
08:49 four rate cuts in 2026. So it should be good for emerging market. But right now in the short term
08:56 the market still wants some and puzzling whether they will cut in the in as fast as they can or
09:05 they delay a lot of uncertainty. OK. So with this condition with the uncertainties as we mentioned
09:13 regarding the first rate decision how do we see it impacting Rupiah and the Indonesian financial
09:18 markets. Yeah. Of course before we talk about what's the effect to Rupiah and also the bonds market
09:24 the immediate effect is on the capital outflows like you mentioned before. So there are
09:30 pressure from the capital outflows in bonds market especially. There were already capital outflow
09:40 around 33 trillion from the bonds market but from the equities actually capital inflows. So most of
09:46 the bonds investors now concerned about the outlook of the stability of emerging markets
09:54 impact from the depreciation of their currency for example to their bond market. And other than that
09:59 I think from the capital outflow it will affect two things to Rupiah depreciation and also to
10:07 the rising of the bonds domestic bond yield. Yeah. Yeah. I mean to talk about this more we saw
10:12 even since yesterday and today Rupiah already touched a very low. Yeah. Close to 16. Exactly
10:19 close to 16000 per dollar. So do you think this will impact a lot on Indonesian Rupiah for the
10:24 long run on the rate cuts. Yeah. In my view yeah I think we have to keep what's the end or the
10:33 directory or the target of the Fed Fund rate. Yeah. If the Fed still insists or persists to
10:39 hold their target of three times cut rate. Yeah. For example this year I think there is a possibility.
10:45 Yeah. If it is already touching above 16000 it will be stronger again or weaker US dollars
10:52 in the second half. So back to below 16000. So it's only temporary in my view. Yeah. Because
10:58 last like last year for example Rupiah is also approaching 16000. And now we already see that
11:04 Rupiah was closing at 15000 below 16400 at that time. So if the Fed I think we can we can yeah
11:13 we can optimize and the opportunity of the rate cut in the second half 2024. Yeah. The chief of
11:21 benefit for Rupiah. Right. The chief of Bank Indonesia Periwara you already saw this as well
11:26 on the rate cuts for this year. So how do you think Bank Indonesia will react then. Is it going
11:33 to be wait and see as well or to take immediate action. So Bank Indonesia of course they will do
11:38 the intervention through three channels from the for example from the open market operation
11:43 including the DDIF and also through the interest rate. Yeah. Three channels to intervene to
11:49 stability Rupiah stability for example. And one one big thing that the Bank Indonesia
11:56 do is does actually that Bank Indonesia will assure the liquidity of the US dollars in domestic
12:03 because right now the pressure of Rupiah is not coming from the stronger US dollars because of
12:10 that sentiment but also from the domestic side it is an increasing trend of demand for US dollar
12:17 because of the dividend payment season right now in the first quarter and also the debt payment
12:23 season right now. So there are many factors that affect of the of the Rupiah depreciation right now.
12:31 So Bank Indonesia will assure that the US dollar that liquidity in the domestic market for example
12:37 will be relatively manageable right now so that there will be any more pressure on that. And you
12:43 see that there is a potential for Indonesian Rupiah to have gain towards this rate cut. Yeah.
12:49 Of course if there is a rate cut in the global or the FED yeah of course it will be give benefit
12:56 for Rupiah. All right. Yeah. Sir Andrius Molo thank you so much for being here and see today
12:59 business. Thank you. Thank you. All right we're going for a break when we return we'll have the
13:04 latest update from the Indonesian stock market so stay tuned here.
13:09 Thank you.
