Macro Strategy

Indonesian rates muted post elections; SGD policy appropriate on inflation
Masyita Crystallin, Irvin Seah24 Apr 2019
    Photo credit: AFP Photo

    Indonesia: Rates muted post-elections
    Yesterday was the first bond auction after the general election on April 17, with the latter’s results pointing to potential re-election of President Jokowi, in line with expectations. This positive result together with encouraging trade balance data supported the IDR, which has rallied since the beginning of the month; appreciating by 1% between April 1 to 23, vs JPM EMCI which was down 0.2% in the same period.

    Rupiah had gained additional support from improvement in the trade balance, which registered surpluses in the last two months (Feb19 at USD330mn and Mar19 at 540mn). This improvement could, however, be fickle as exports continue their deceleration trend, while oil prices climb, which weighs on imports. Still, we think overall trade balance and current account will likely to improve in 2019 compare to 2018 as Rupiah depreciation will finally pass through to the prices and hence imported demand.

    Equities strengthened slightly after the election and revisited levels before the polls, at 6,414 on April 22. Similar to equities, the impact of election on rates has been relatively muted. 10Y yield was down by 13bps between the last peak on April 12 to April 18, but has since risen by 10bps by April 22. Anticipation of rate cuts have been reflected in the bull steepening of the 6M/10Y segment of the curve since April 16. The last two govvies auctions still indicate strong demand with bid-to-cover ratio ranging from 1.5 to 1.8 and the 10Y yield stable at 7.6%.

    For rates, given that pressures to Rupiah have eased and inflation has slowed to the weakest level since 2000, the only factor that need to be watched further are the trade balance and current account. For now, we believe that the BI is likely to stand pat this year, as global uncertainties remain present on both trade and capital flows front.

    Singapore: Benign inflation supports SGD policy decision
    Inflation continues to remain benign in Singapore. Latest Mar19 headline CPI inflation registered just 0.6% YoY, slightly below consensus expectation of 0.7%. And interestingly, core inflation slowed to 1.4% y/y, down a tad from 1.5% y/y previously. Indeed, Inflation has persistently surprised on the downside. Transports CPI continues to be the main drag on inflation, on the back of lower oil prices at the start of the year. Housing and utilities falls for the third consecutive month due to  lower electricity tariffs. This will support the central bank’s decision to maintain the status quo for the SGD policy earlier this month.

    Going forward, inflation is expected to pick up along with the steady rise in oil prices. However, a sharper-than-expected decline in electricity prices due to the liberalization in the electricity market should tamper domestic price pressure and keep inflation in check. Though inflation will pick up in the coming months, the pace of increase will be modest. We expect full-year inflation to register 1.1% against the backdrop of such benign inflationary environment. Hence, the current modest and gradual appreciation stance of the SGD policy is still appropriate.


    Masyita Crystallin, Ph.D.

    Economist – Indonesia & Philippines


    Irvin Seah

    Executive Director

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