Indonesian bonds gain on hopes of central bank easing, deflationary pressures continue

The Indonesian government bonds gained Monday as investors expect that the Bank Indonesia will lower its key interest rate by 25 basis points to a record low of 5 percent.

The yield on the benchmark 10-year bonds, which moves inversely to its price, fell 3-1/2 basis points to 6.996 percent, the yield on super-long 30-year bond dipped 3-1/2 basis points to 7.641 percent and the yield on short-term 3-year note slid more than 5 basis points to 6.625 percent by 04:00 GMT.

Bank Indonesia will hold its monetary policy meeting on September 22 at 09:00 GMT and it is widely expected to lower its benchmark interest rate further by 25 basis points to record low of 5.00 percent as the current stage of persisting deflation opens door to a series of rate cuts.

Further, deflationary pressure persists in the transport and communications component of the consumer price index (CPI) and housing inflation stays benign while food inflation remains modest at 5 percent pace.

Given that the government is expected to ease the pace of its spending going forward, BI may feel compelled to do more to support GDP growth momentum going into 2017. As CPI inflation is set to come in within the lower half of its target range, there is a greater likelihood now that BI may trim its policy rate by another 25 basis points before the year-end. The rate cut may be delivered when the central bank meets this week, DBS reported.

Meanwhile, the benchmark Jakarta Stock Exchange Composite (JKSE) traded 0.79 percent, or 41.86 points higher at 5,309.628 by 04:00 GMT.