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Indonesia Pauses Easing on FX Pressures

• BI held rates at 4.75%, surprising consensus expectations of a 25bp cut. The pause addresses rupiah stability concerns amid USD5.26bn capital outflows.
• Inflation is benign at 2.65% (core 2.19%) within the target range. Enhanced macroprudential policy is complementing easing with credit growth incentives.
• Further cuts are likely as the Fed eases, depending on rupiah stability, credit transmission effectiveness, and fiscal-monetary policy coordination.

Credit Cockroaches Incubating

• Write-downs at two regional banks follow the cockroaches of First Brands and Tricolor bankruptcies, and should not be dismissed as isolated idiosyncratic events.
• Overly accommodative monetary conditions are stimulating markets to incubate cockroach eggs that may spawn as private credit malinvestment in the next recession.
• It is too early for these eggs to hatch, aided by the warm support of further Fed rate cuts. So, risk assets will probably keep on rising in the void of economic data releases.

By Philip Rush