Supply chain shocks and rate delays test Indonesian inflows

Delayed U.S. rate cuts could strain rupiah and reshape capital flow strategies.

DBS Indonesia has flagged oil supply chain risks and delayed U.S. interest rate cuts as external threats that could disrupt capital flow momentum and pressure the rupiah, even as investor sentiment toward Asia strengthens.

“You see that most of the other global economies are actually in a rate cutting cycle,” said Puneet Punj, Managing Director & Country Head (Indonesia) for Global Financial Markets at DBS Indonesia. “As you move to Asia, you see that most of the major economies are actually adopting a rate reduction mode… so we're clearly seeing the capital flows are back into Asia, both in the bonds and equity markets.”

In Indonesia, bond inflows are robust, with equity markets slightly lagging. But despite the momentum, global supply chain vulnerabilities remain a concern.

On the macro side, U.S. monetary policy remains a critical variable. “You have to watch what happens on the US front… Any delays… will have an impact on the dollar index, and then… on dollar, rupiah or BI policy rate decisions.”

To manage volatility, DBS is recalibrating its trading exposures. “If you're seeing some wild swings in certain asset classes… we trim our exposures,” Punj said. “We could also… move from directional trades to… basis trades, Relative Value trades.”

Clients are adopting similar strategies. “Clients can… do asset swaps to enjoy higher yields… or use swap implied financing to avail cheaper financing compared to straight financing,” he added.