02 Jan 2024 | News & Feature

Between two paths toward deflation

  • The Indonesian financial market ended 2023 on a strong note, bolstered by foreign capital inflows into the domestic equities market as the Fed looks set to cut its policy rate in 2024.
  • Despite the clear pivot signal, the extent to which the Fed would lower the FFR remains debatable as the central bank based its projection on the soft landing assumption while the market continues to expect an economic slowdown that would necessitate deeper rate cuts.
  • The still-uncertain path towards the Fed’s 2% inflation target may continue to pose a threat to the Indonesian economy, as lower-than-expected rate cuts following a soft landing may spark foreign capital outflows while declining global demand would spell troubles for the real economy.