INCREASING tensions in the Middle East between Iran and Israel have sparked conflict, including missile attacks and airstrikes.
This geopolitical instability poses risks to markets in Indonesia, which are exacerbated by the potential impact of oil price increases of up to US$100 per barrel, capital outflows, and Rupiah depreciation.
Aryo Perbongso, Head of Fixed Income Research PT Sinarmas Sekuritas (SimInvest) views that the Government and Bank Indonesia face a dilemma in choosing between Pro-Growth policies and stabilizing fiscal costs to manage the value of the Rupiah.
Maintaining the BI rate amidst these challenges could signal support for economic growth but could result in increased fiscal costs.
So comprehensive coordination between BI and the government is very important to stabilize the Rupiah exchange rate and implement preemptive growth-oriented policies.
“Our assessment is that, looking at the current exchange rate, it is likely that the BI rate can still be maintained in April 2024, considering that the dividend payment cycle is still ongoing,” said Aryo, Tuesday (23/4).
Also read: What is the purpose of Israel’s limited attack on Iran?
Therefore, there is concern that the current increase in the BI rate may not provide significant effectiveness.
A possible scenario for BI and the government to stabilize the value of the Rupiah is to maintain the BI rate and increase the yield on Government Debt Securities (SBN).
Maintaining the BI rate means supporting Indonesia’s economic growth compared to increasing interest rates.
Also read: Iran-Israel Conflict Has Minor Impact on Indonesia’s International Trade
“Even though this could cause an increase in APBN fiscal costs due to higher SBN yields,” said Aryo.
Sinarmas Sekuritas analyst Isfhan Helmy predicts that the impact of the escalation of the Middle East conflict will not have a direct influence on the Indonesian stock market.
The decline in the JCI that occurred at the opening of trading on the first day after the Eid holiday was solely a factor in the decline in the US stock market during the Eid holiday week.
Sinarmas Sekuritas advises investors to remain calm and take advantage of the current decline in share prices as an entry point at a discounted price.
“We see that this is only a temporary bearish trend for the JCI, and in fact it should be an opportunity to enter issuers with good fundamentals,” said Isfhan. (Z-8)
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