The Indonesian long-term bonds gained on Tuesday as investors pour into safe-haven assets amid deepening economic growth fears. Also, investors anticipate another 25-50 bps cut in 2016 due to soft economic growth. The yield on the benchmark 10-year Treasury note which moves inversely to its price, moved down 0.13 pct to 7.525 pct and the yield on the 3-year Treasury bond dipped 0.31 pct to 7.385 pct by 0640 GMT.
The trade data for March is due on Friday. Earlier, the February trade figures tumbled 7.2 pct y/y and oil exports fell by 36.5 pct y/y. Imports also fell in February, by 11.7 pct y/y, indicating weak domestic demand and resulting in a trade surplus of USD 1.1bln. We expect the Bank Indonesia’s easing trend to continue in 2016 due to ongoing weakness in China and the Eurozone.
The regional trade recession continues to weigh heavily on Indonesia. However, given that both imports and exports are contracting significantly and coincidentally, we expect to see the maintenance of an ongoing trade surplus in March. In terms of the details, exports are expected to fall 21.6 pct y/y from 7.4 pct y/y in the previous month due to slower global demand. However, stronger palm and copra exports could persist and provide a slight upside risk to our forecasts. On imports, we project imports to decline 19.2 pct y/y basis, down from 11.7 pct y/y in the last month, due to the confluence of a weaker consumption and investment climate. Taken together, this should translate into an overall trade surplus USD500m (February USD1,136mn) for March.
“With the 25bps rate cut last week, the Bank Indonesia has now cumulatively cycle. We see scope for another 25-50bps in the up-coming policy meet”, said ANZ in its report.
Meanwhile, the Bank Indonesia governor Martowardojo said recently that the central bank still has room to ease monetary policy, adding that Bank Indonesia would be data dependent albeit more cautious in future policy decisions.
We foresee that the Bank Indonesia is unlikely to ease at the monetary policy meeting later this month, having already cut rates by a total 75 bps since January. This is consistent with the assessment that recent CPI figures have improved a bit -CPI edged up to 4.5 pct y/y in March from 4.4 pct y/y in February.
Lastly, if inflation and GDP growth fail to improve over the coming months, easing will occur sooner rather than later, pushing bonds prices further up.
The material has been provided by InstaForex Company – www.instaforex.com