Macro Strategy: The Conduit for Liquidity

Stock Code	Last Price	Change	Change %
DSSA	67,275	1,375	2.09%
FORU	1,525	305	25.00%
COIN	1,510	300	24.79%
PANI	15,975	300	1.91%
CLAY	1,380	275	24.89%
DCII	347,000	275	0.08%
PNGO	2,680	220	8.94%
BREN	7,275	200	2.83%

Macro Strategy

The Conduit for Liquidity

The current tight liquidity will hamper the effective transmission of lower policy rate cut throughout the financial system.
We assess liquidity conditions from 4 perspectives and find that higher fiscal spending will be the main catalyst for improvement.
With geopolitical tensions easing, focus is shifting back to trade policy, especially as the 90-day reciprocal tariff pause expires next week.

Liquidity Outlook: Improvement Expected in 2H25. Bank Indonesia’s rate cut was intended to boost liquidity on the supply side by creating more favorable conditions for banks to expand their intermediary function. However, tight liquidity persists and may continue to hamper the effective transmission of the policy rate throughout the financial system. We assess liquidity conditions from 4 perspectives and conclude that increased fiscal spending will be the key driver for improving overall liquidity.

Monetary Policy - Bank Indonesia has maintained a net negative issuance of SRBI, with the monthly gap between matured and newly issued instruments widening further in June 2025. The last three SRBI auctions recorded bid sizes above the 2025 average. While this would typically signal improving liquidity, it may instead indicate weaker loan disbursement appetite among banks.

Fiscal Trend - As of May 2025, government spending had contracted by 11.3% year-on-year. Expenditure in critical categories such as social assistance and goods procurement remains below historical norms. The government attributes delays in social aid to ongoing beneficiary data validation, while weak revenue performance is likely behind the slow disbursement of goods spending, which includes key programs like MBG. Additionally, government cash balances at BI have risen to IDR648tn, 55% higher from Nov-24 level, further draining liquidity from the system.

Money Supply Trend - Latest money supply figures show M2 growth slipping below 5%, dragged down by a deeper decline in net receipt to central govt at -26% in May (vs. -21% in April) and moderating loan growth at 8.1% (vs. 8.5% in April). With banks prioritizing asset quality management, loan expansion is expected to remain subdued, reinforcing the importance of fiscal spending to support liquidity conditions.

Banking Sector – Our channel checks indicate that TD rates remain elevated, reflecting tight liquidity conditions. Although loan growth is moderating, slower growth in Third Party Funds (TPF) continues to put pressure on banks’ liquidity, especially given the high LDRs at mid and large banks. Banks have increased SBN holdings by IDR117tn YTD, lifting total ownership to IDR1,169tn, reversing last year’s trend.

Our banking analyst’s recent report highlights a decline in asset quality across all household loan segments, including property, vehicle, and other household loans. Notably, the non-performing loan (NPL) ratio for other household loans has surpassed its Covid-19 peak and has been trending upward steadily since early 2024. This persistent increase is especially concerning given the absence of any clear signs of recovery. As such, fiscal spending will be the primary conduit for liquidity. Looking ahead, we expect government expenditure to pick up in the second half of 2025. June’s fiscal data should reveal a slower contraction for 1H25, helped by the rollout of ad hoc stimulus measures. While full-year spending may still fall short of 2024 levels, the second half is likely to see a notable improvement compared to the subdued first half. Key items such as goods spending and social aid remain well below historical averages, and faster realization in these areas would help channel liquidity from the central bank into the real economy, boosting TPF and ultimately strengthening overall financial system liquidity.

Tariff Uncertainty Back in Focus. With geopolitical tensions easing, market attention is turning back to trade policy, especially the upcoming expiration of the 90-day pause on the reciprocal tariff rate, which ends in a week. So far, only the UK and China have secured tariff agreements with the US, while other major partners such as the EU, Japan, and Canada remain without clear terms. President Trump has yet to outline a firm plan for post July 9, leaving multiple possible scenarios: an extension for countries with deals, higher tariffs for others without, or another delay in changes.

This policy uncertainty continues to fiddle with economic expectations despite resilient data so far. Fed Chair Powell recently stressed that June and July inflation readings will be pivotal in gauging how tariff-related cost pressures are feeding through the economy. The lack of clarity around the final tariff structure and its inflation pass-through effects is keeping the Fed cautious about the timing of potential rate cuts. While some FOMC members have signaled support for an earlier pivot, the risk of underestimating inflation’s stickiness remains high. As reiterated in the latest press conference, price stability is still the Fed’s top priority, especially given persistent stagflation concerns.

Capital market – Foreign Outflows Persist Despite Stronger IDR. The 10-year UST yield fell 5 bps to 4.29%, while the 2-year yield dropped 11 bps to 3.73%. Domestically, the 10-year Indonesian Government Bond yield eased 9 bps to 6.66%. The U.S. Dollar Index weakened 1.70% w-w to 97.22, while the Rupiah appreciated 1.16% to IDR 16,205. Indonesia’s 5-year CDS narrowed 3 bps WoW to 79 bps, signaling improved credit risk perception. JCI down 0.1% w-w, the worst in the region, with foreign outflows remaining large.

Fixed Income Flows - The Ministry of Finance reported a weekly foreign outflow of IDR1.66tn from the domestic government bond (SBN) market, reducing total foreign holdings to IDR917tn. Cumulative MTD foreign outflows reached IDR8.82tn. Domestically, banks saw a weekly outflow of IDR14.45tn but still recorded an MTD inflow of IDR33.19tn. Bank Indonesia (excluding repo) posted a weekly inflow of IDR35.26tn, with an MTD outflow of IDR 60.88tn. Mutual funds booked a small weekly inflow of IDR0.23tn, while insurance and pension funds added IDR5.38tn.
SRBI Flows - In the SRBI market, the outstanding further declined by IDR15.52tn for the week, bringing the total to IDR 796tn. Despite a net weekly outflow of IDR 7.18tn, foreign participation stayed relatively stable. YTD, foreign investors have posted a net outflow of IDR35.87tn, leaving total foreign holdings at IDR179tn, or about 22% of total SRBI outstanding.
Equity Flows - Foreign outflows in the 4th week of June reached IDR2.3tn, pushing MTD and YTD outflows to IDR9.7tn and IDR38.3tn, respectively. June’s outflows have more than offset the IDR6.1tn inflow recorded in May, which was the first monthly inflow since Sep-24. The JCI slipped 0.1% w-w, marking the weakest performance in the region. Top five stocks with steady inflows were ANTM, TLKM, RATU, BBNI, and BREN, while BBCA, BBRI, BMRI, ADRO, and CUAN saw consistent outflows.

… Read More 20250701 Macro Strategy