In an unexpected turn, Bank Indonesia (BI) lowered its benchmark interest rate by 0.25% to 5.75% during its January 2025 meeting, surprising markets that anticipated no change. This decision, supported by record-high forex reserves of USD 155.7 billion, reflects BI's proactive approach to navigating global and domestic uncertainties. By easing monetary policy, the central bank aims to bolster economic growth, which has already lifted market sentiment and relieved pressure on the bond market, where the 10-year government yield had reached 7.4%.

However, this pro-growth strategy is not without risks. A lower interest rate could weaken the Indonesian rupiah (IDR) and lead to capital outflows as the interest rate differential with the US narrows. Adding to the challenges, persistent US Treasury yields, driven by strong US economic performance and inflationary pressures, could further weigh on emerging markets like Indonesia.

Simpan Views

Leads Back to the Fed

Looking ahead, the US Federal Reserve is unlikely to lower rates in 2025, given ongoing inflationary pressures and robust economic performance. This makes the Rupiah susceptible to external pressures, particularly global economic uncertainties and trade tensions.

Sticking to the Same Plan

Our strategy for fixed-income and equity portfolios remains largely unchanged. However, we are now selectively reducing positions in stocks that have either delivered strong performance—allowing us to secure profits—or are heavily tied to domestic markets, where weak purchasing power is affecting discretionary spending. Proceeds from these sales are being reallocated to stocks with significant U.S. Dollar exposure and momentum-driven stocks that continue to show strong performance.

The approach remains consistent for investors with a long-term investment horizon: staying invested and applying the Dollar Cost Averaging (DCA) strategy within our Sustainable Equity Fund. This fund is designed to deliver long-term growth while aligning with sustainable investment principles, offering an excellent avenue for building wealth over time.