JAKARTA - Bank Permata economist Josua Pardede estimates foreign exchange reserves by the end of 2024 will drop to around USD 140 billion to USD 142 billion, compared to USD 146.4 billion in 2023.
"In line with the higher for longer risk, we expect foreign exchange reserves to decline in 2024," he explained in his statement, Wednesday, May 8.
According to Josua, by looking at the risks associated with uncertain global developments will still be a concern throughout the first semester of 2024.
In addition, ongoing risk-off sentiment amid a higher for longer scenario will continue to hinder the flow of foreign funds into Indonesia, thus requiring Bank Indonesia to stabilize the Rupiah exchange rate.
In addition, Josua conveyed that the decline in the trade surplus was due to the normalization of commodity prices and the weakening of the economy of major trading partner countries, in addition to Indonesia's domestic demand which is still quite strong, poses a risk of widening the current account deficit.
" Seasonal factors such as coupon payments and dividends to non-residents, which usually peak in the second quarter every year, also contribute to widening the current account deficit. All of these factors are expected to reduce foreign exchange reserves in the first semester of 2024," he said.
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Josua said that in the second semester of 2024, there is an opportunity to ease global risks. However, he is still anticipating space for the Fed's interest rate reduction, and revising expectations from three cuts with a total of 75 bps to just one 25 bps cut.
Josua said the Fed's potential reduction in interest rates could increase risk-on sentiment, thus potentially increasing capital flow into Indonesia.
"Therefore, we anticipate a slight increase in foreign exchange reserves towards the end of 2024," he said.
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