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(Bloomberg) — Indonesian assets will get a boost from a positive sentiment stemming from a trade deal reached with the US, according to analysts.
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The Southeast Asian country secured a 19% tariff, lower than the 32% President Donald Trump threatened earlier, while US exports will not be taxed.
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The deal came after months of negotiations that saw the Indonesian government propose near-zero tariffs on about 70% of US imports, as well as business deals in critical minerals, energy, agriculture and defense. Trump said on his social media post later that Indonesia also agreed to purchase $15 billion in US energy, $4.5 billion of agricultural products and 50 Boeing Co. jets, “many of them 777’s.”
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This is what analysts said about how the deal will affect Indonesian assets.
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Brendan McKenna, emerging markets economist and FX strategist at Wells Fargo
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- “A tariff rate that is lower than initially flagged can help sentiment and attract some flows to Indonesia in the short term”
- USD/IDR could fall toward 16,250 or below but “that’s a knee-jerk type reaction and more short-term in nature”
- “In order for a sustained rally to be achieved we would need to see either more trade deals follow up Indonesia, another extension to the deadline, or another development that improves broader sentiment toward EM FX”
- BI likely holds its rate as tariff uncertainty remains, “but maybe they signal that cuts can be delivered again at future meetings now that at least an idiosyncratic risk is lifted”
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Handy Yunianto, fixed income research at Mandiri Sekuritas
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- The de-escalation of trade tensions may help foreign inflows to continue into the bond market as sentiment turns risk-on
- “If the rupiah could continue to stabilize, the room for further BI rate cuts will be wider for the rest of the year”
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Kok Hoong Wong, head of institutional equities sales trading at Maybank Securities
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- The news should be a “positive boost for the local market, given that a deal has been reached, and the touted number was lower than initial”
- “Markets in general have been factoring in a base 20%-30% rate”
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Mohit Mirpuri, senior partner at SGMC Capital
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- “Markets tend to reward certainty and momentum so I expect a positive reaction as investors digest the full scope of the deal”
- Bank Indonesia has room to stay dovish with inflation under control and the rupiah stabilizing
- Expects the central bank to hold its policy rate later on Wednesday “but the groundwork is being laid for a growth-focused 2H, exactly what investors want to see”
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Rodrigo Catril, currency strategist at National Australia Bank Limited
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- For global growth, a deal is not good news and likely limits the upside for pro-cyclical currencies including the rupiah and Australian dollar
- “The broad impression is that the deal does favor the US relative to a starting point of no tariffs. That said, the worst-case scenario for Indonesia has been avoided”
- “The idea of a baseline 10% tariff is probably too conservative. Country average tariff rates are closer to 20% rather than 10%”
- “The restriction on transshipment, to the extent that it can be enforced, is a new theme to watch”
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—With assistance from Ruth Carson.
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English (US)