Indonesia likely to post 2.3% growth in Q2

IDR was one of the worst performing AXJ currencies last month, though its 1.58% depreciation versus USD was eclipsed by KRW (-4.5%) and THB (-3.38%). Domestic data was mixed, but still weak. The commodity price rout is weighing heavily on the economy. Approximatly 60% of Indonesia's exports are commodities, particularly energy (coal, oil and gas, fuels). Indonesia's falling terms of trade also risks a widening in the current account deficit. 

Bank of Indonesia estimates the economy likely to to post 2.3% growth in Q2, notes RBC Capital Economics.

Yet Indonesia's annual inflation rate in July held at 7.26% and on monthly basis, headline CPI inflation was 0.93%. Even though core CPI inflation slowed from 5.04% to 4.86%, inflation is still too high for BI to ease monetary policy further, therefore, RBC Capital Markets sees upside risk to market expectations of further BI easing. 

Reinforcing this view, foreign investors' share of outstanding Indonesian government bonds increased to a record 39.6% in June, one of the highest shares in the region. BI must remain vigilant against inflation and a renewed widening of the current account deficit, argues RBC Capital Economics.