Tuesday, June 6, 2023
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Analysis-Indonesia bulls cheer late is better than never raising rates

Rae Wee

SINGAPORE (Reuters) – Indonesia raised interest rates for the first time in four years, making its central bank one of the last to abandon pandemic-era monetary policy, but it also gave Investors have reason to remain bullish on one of the world’s more resilient emerging markets.

Bank Indonesia raised its benchmark interest rate on Tuesday as it signaled accelerating inflationary pressures, surprising most analysts, less than a week after Governor Perry Warjiyo ) said

The rate hike, which Warjiyo called a “pre-emptive move,” came after the central bank had been talking about lowering inflation for months, prompting some investors to be too casual with policymakers Worry about and over-reliance on price controls in their risk assessments.

“I don’t know if I would describe it as a relief, but you might see some lessons learned from other people’s experiences, Alex, head of Asia investment strategy at JPMorgan Private Bank

Wolff said Indonesia is a “country we prefer in Asia”, with strong domestic demand and favourable trade terms supporting its Solid growth prospects.

Other investors also like rate hikes, reassuring them that policymakers are aware of the risks and have them in their hands, while higher growth forecasts have boosted confidence.

The rupiah has risen and is about 1.2% above its July low – more resilient than its peers as MSCI’s broadest index of emerging market currencies is at a six-week low.


Stocks and bonds also rose, with the Jakarta Composite Index holding steady this week and up 9% this year, while most other markets fell sharply.

Indonesia benchmark 10 – Annual bond yields have fallen nearly from a high of 7.544% in June basis points. While high-yield sovereign bond spreads have generally widened, spreads over U.S. Treasuries have also narrowed this year.

Citi raised its strategic view to medium from underweight on Tuesday Credit Suisse is also optimistic.

“As long as 12 month earnings forecasts continue to move higher…we Still to Suresh Tantia, senior investment strategist at Credit Suisse in Singapore.

Provides significant ancillary support for portfolio inflows in the near term. “

Emerging pressures

Global interest rate hikes and dollar recovery make emerging markets a troubling year, but rising commodity prices and foreigners in bond markets The reduced share held has propped up Indonesia’s economy and limited damage.

Indonesia’s relative outperformance contrasted with past episodes of economic and financial instability, which helped it shake up its performance Part of the reputation of fragile emerging markets.

“(BI has) so far held the rupiah steady, said Mizuho Bank economist Lavanya Venkateswaran, He is wary of runaway inflation. By implying that the cost of fuel subsidies – $1 billion this year 50 – is unsustainable.

Asked about potential fuel price hikes, Warjiyo said BI will update its inflation outlook based on the government’s subsidy policy. Further declines in commodity prices or volatility in domestic demand also pose risks.

So far, however, the market seems content to support policymakers, and aside from currencies, bonds are the best indicator of investor nervousness.

Yields remain stable, but foreigners hold the lowest market share since 544, around due to small capital outflows .6%.

Indonesia’s foreign exchange reserves depleted slightly, falling to 10 $200 million in July But they remained at import-equivalent levels for 6.2 months, well above the international standard of three months.

“We believe the risk of capital flight is low because (foreign) holdings are already low,” Goldman Sachs (NYSE: GS) analysts said in a note on Wednesday that the report recommended shorting the Philippine peso against the Indonesian rupiah.

“With BI now on track, we think this will support currencies and therefore local currency bonds as BI maintains interest rate differentials with the US”




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