The Indonesian government bonds continue to rally on Monday as the Bank Indonesia in its recent report concluded that domestic economy is expected remain subdued in 2016 due to weak global outlook and sluggish domestic consumption.
Also, rising expectations for further Bank Indonesia easing in the upcoming policy meeting is shifting investors towards safe-haven buying.
The yield on the benchmark 10-year bonds fell nearly 6 basis points to 7.223 percent and the yield on short-term 3-year note tumbled 10 basis points to 7.102 percent by 06:00 GMT.
The Bank Indonesia in its latest report mentioned that Gross Domestic Product (GDP) to grow 4.94 percent y/y in the second quarter of 2016, only rising slightly from GDP growth realization of 4.92 percent in the first quarter. Also, the GDP growth is expected to improve in second half of this year as credit growth is expected to accelerate.
Growth is forecast to remain subdued as Indonesia's household consumption has not improved markedly yet (reflected by low demand for credit). Meanwhile, the global economic context remains plagued by uncertainties, particularly ongoing concern about the economies of the USA, China and Europe.
Moreover, the Indonesia is a key commodity exporter and with commodity prices at a persistently low level due to weak global demand, Indonesia's export performance has little room to improve.
In addition, the recently strongly appreciating rupiah exchange rate does not make Indonesian exports more attractive for foreign importers. Therefore, Bank Indonesia is expected to prevent the rupiah from strengthening too strong in a bid to support the nation's manufacturing exports.
Looking ahead, the trade release for June is due on Friday. As we have been highlighting, the global slowdown has hurt exports, especially to China and the Eurozone. The trade data for May showed exports falling by 9.8 percent y/y, mainly because of lower oil and other commodity prices, and we are looking for -8.0 percent y/y in June. Imports declined by 4.1 percent y/y in May, indicating weak domestic demand, and we see them printing -5.0 percent y/y in June. The trade surplus narrowed to USD 0.4 billion in May and we see it widening slightly to USD 0.6 billion in June.
Meanwhile, The benchmark Jakarta Stock Exchange Composite (JKSE) traded higher 1.52 percent, or 75.80 points, at 5,047.38 by 06:30 GMT.
The material has been provided by InstaForex Company – www.instaforex.com