Halister News

(Bloomberg) -- Yield on Indonesian 5-yr bonds may fall below 6.60%, year-to-date low, in short-term if Bank Indonesia cuts rates and signals potential for more, Bloomberg strategist David Finnerty writes.

• With inflation declining, BI is expected to lower 7-day reverse repo rate by 25 bps to 5.00% according to 16 of 19 economists in Bloomberg survey; 3 predict no move; decision today; central bank last cut on June 16, by 25 bps
• CPI in Aug. fell to 2.79% y/y, core CPI declined to 3.32%; BI has 3%-5% target for 2016 so inflation below lower boundary of that corridor provides room for further easing
  • Cutting interest rates may also provide support to local economy; BI highlighted in Aug. statement that global growth likely to remain sluggish and concern that domestic growth may be undermined if govt spending falls in 2H
• Central bank may signal room for future rate cuts as Fed has lowered its dot path for 2017 onwards; see chart here; this should aid rupiah strength
  • BI says it wants to maintain exchange rate stability; lower Fed dot plot helps offset impact lower Indonesian interest rates have on exchange rate
• Overseas borrowers have been net buyers of $7.9b of Indonesian bonds this year as dovish Fed spurred investor appetite for high yielding debt
• Yield on Indonesian govt bond due July 2021 at 6.797%
• NOTE: David Finnerty is an FX strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice.