Sustained Support From Bank Indonesia May Bolster Corporate Debt

A plan by President Joko Widodo to keep seeking central bank support for his government’s deficit financing until 2022 may keep interest rates low for another couple of years and bolster demand for corporate bonds.

The government will only stop asking forcentral bank involvement, which may include Bank Indonesia directly buying government securities, in 2022 if economic growth reaches its 2021 target of 4.5%-5.5%, the president told a group of reporters from foreign media Tuesday.

  • Therupiah weakened 1.3% to 14,763 to the dollar, its steepest drop in 2 months
  • The yield on the benchmark 10-year sovereign bond rose 3 basis points to 6.89%
  • Bank Indonesia reiterated that its burden-sharing agreement with the government is a one-time policy, Deputy Governor Dody Budi Walujo said on Wednesday

Sinarmas Sekuritas (Jeffrosenberg Tan)

  • “Some may interpret the news negatively but at the end of the day, equity and fixed-income investors will come to a realization that such intervention will provide the market with abundant liquidity and that can only be good for asset prices, at least in the short term.”
  • Corporate bonds, especially better-quality ones, will be supported by the measures. “Whether that will translate to lower-quality issuance further down the road will depend on how the Indonesian economy can recover.”

Maybank Kim Eng (Isnaputra Iskandar)

  • “If the regulators fail to manage this well, it can lead to rising country risks for Indonesia which may lead to a weaker rupiah exchange rate and depressed asset prices. Overall bond yields will rise. With such risks in mind, some investors may opt for higher-quality issuance.”

Sucorinvest Asset Management (Jemmy Paul)

  • “If this move leads to a prolonged low interest-rate environment, especially with the interest rates on bank deposits, then we might be able to see a broad rally in the corporate bond market.”
  • “Currently sentiment for corporate bonds is still weak because of concerns over the impact of the pandemic on the financial condition of companies.”

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