Danareksa Debt Research Weekly Report, 31 October 2018 : Wait and See

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7-Day Reverse Repo Rate Unchanged at 5.75%
At the Bank Indonesia Board of Governors meeting on 23 October 2018, Bank Indonesia decided to maintain its 7-day Reverse Repo Rate (BI7D RRR) at 5.75%. This decision is consistent with efforts to keep the deficit within a safe limit and maintain the attractiveness of the domestic financial market in an effort to bolster Indonesia’s external resilience amid high global uncertainty.

In addition, there are several reasons of 7-Day Reverse Repo Rate unchanged. First, slower global economic growth in the third quarter of 2018 such as China which grew only by 6.5%, lower than the previous period of 6.7%; while European zone economic growth rose by 1,7% compared to 2.2% in the period before.

Second, Indonesia’s economic growth in the third quarter of 2018 expected to be lower than previous period mainly due to lower net exports in the third quarter which recorded minus USD2.7 billion. Even though the rupiah still depreciated but volatility remained stable.

Indonesian Government bond yields declined, in line with the declines in US Treasury yields

Based on the Danareksa Government Bonds Yield Index, the Government bond yield was recorded at 8.66% as of 26 October 2018, or slightly down compared to the closing date on 19 October 2018 of 8.68%. By contrast, the Indon CDS increased by 10bps for the 5-year CDS Indon and by 12bps for the 10-year Indon CDS. Meanwhile, even though the rupiah depreciated by 0.20% relative to the USD, the volatility (as calculated from the weekly average) was lower last week (at 25 points) than in the previous week (32 points). Meanwhile, the 10-year US Treasury yield declined by 12 bps from 3.20% on 19 October 2018 to 3.08% on 26 October 2018.

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