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The Indonesian government bonds rallied Friday after data showed that country’s inflation fell to the lowest in seven-year, sliding below the Bank Indonesia's target range of 3-5 percent. Also, continues weakness in inflation made September interest rate cut unavoidable for the central bank.
The yield on the benchmark 10-year bonds, which moves inversely to its price, fell 4 basis points to 7.026 percent, the yield on super-long 30-year bond also ended 4-1/2 basis points higher at 7.654 percent and the yield on short-term 3-year note slid more than 3 basis points to 6.648 percent by 06:00 GMT.
Indonesia’s headline inflation eased from July’s 3.21 percent y/y to 2.79 percent y/y in August. On a month-on-month basis, prices dropped 0.02 percent, according to Statistics Indonesia. The subdued result if August is mostly because of the normalization in transport and food prices. This more than countered higher education costs that usually rise at the beginning of the school year in August, said ANZ in a research note.
The Indonesian central bank is dovish. It has cut its growth projection range for 2016 to 4.9-5.3 percent y/y, as compared with the earlier range of 5.0-5.4 percent y/y. This was because of the anticipated slower public spending in the second half of 2016.
“We expect another 25bps cut in the new reference rate (7-Day Reverse Repo Rate) to 5.00 percent at the September 22 policy meeting, which follows on the heels of the September FOMC decision”, added ANZ.
Meanwhile, The benchmark Jakarta Stock Exchange Composite (JKSE) traded 0.21 percent, or 11.07 points higher at 5,345.625 by 06:00 GMT.
