(Bloomberg) -- Bank Indonesia’s surprise interest-rate cut may lead to higher foreign inflows into bonds and stocks, which may end up supporting the rupiah, according to analysts.
A potentially weaker dollar on the back of a start of interest-rate cuts by the Federal Reserve may also aid emerging-market currencies, including the rupiah. The currency erased intraday losses on Wednesday to close little changed at 15,340 per dollar.
Here’s what market participants had to say:
It’s a rally for bonds
Philip McNicholas, Asia sovereign strategist at Robeco Group:
“This move was a long time coming. Taking this action now suggests that BI is confident that global liquidity conditions are likely to remain forgiving thanks to Fed policy easing. This should be favorable for IndoGBs but, given that a large amount of Fed easing is priced in a very short time-frame, risk of volatile price action in the rupiah persists, meaning gauging BI’s policy outlook will be on a meeting-by-meeting basis.”
Eugene Leow, a fixed-income strategist at DBS Bank:
“IndoGBs have been enjoying the twin tailwinds of a weaker US dollar and lower US Treasury yields for a few weeks now. Now there is an additional tailwind from loose domestic monetary policy. On balance, this is probably going to be supportive of front to intermediate tenor IndoGBs.”
Frances Cheung, a rates strategist at Oversea-Chinese Banking:
“While economist consensus was for a hold, the market had held some expectation for a cut today which may mitigate market reaction. As IndoGB-UST yield differentials have already improved, and there may still be further downside to short-end UST yields, IndoGBs shall stay appealing to foreign investors.”
Alicia Chu, head of fixed income and portfolio manager at Standard Chartered Bank:
Investors have been constructive on Indonesian US dollar credits given the favorable medium-term growth backdrop and “this is likely to continue across the credit spectrum with BI’s accommodative policy stance,” she said. “South-East-Asian economies such as Indonesia offer the twin balance of growth and policy stability. Valuations remain interesting with supportive technicals against this backdrop, as Indo USD bonds offer a decent carry especially in the long end.”
Positive for rupiah
Alvin Tan, head of Asia FX strategy at Royal Bank of Canada:
“Unlike G-10 currencies, the BI rate cut will not hurt the local currency, assuming the Fed indeed starts easing imminently too and the US doesn’t fall into a recession. In a positive global risk environment, the BI easing cycle will encourage foreign investors to buy more Indonesian government bonds, and hence buoy the rupiah in the process”
Alan Lau, a strategist at Malayan Banking:
“The rupiah’s outlook remains focused on whether the Fed’s actions and words point to increased dovishness or consequences for the US economy,” he said. “A dovish move together with any reassuring words about economic conditions from the Fed can on its part can help to support appetite for USD/IDR and the wider EM FX complex.”
Stocks may benefit too
Alan Richardson, a fund manager at Samsung Asset Management:
“It was earlier than expected which should support higher market valuations and a sequence of rate cuts over the next 12 months should transmit to better-improved growth performance.”
John Foo, founder of Valverde Investment Partners:
“Its a nice extra boost to our rate-sensitive Indonesian companies. This firmly cements the trend of declining funding costs that will help indebted consumers and corporates.”
Nirgunan Tiruchelvam, an analyst at Aletheia Capital:
“This will increase the attraction of ASEAN. ASEAN in general and Indonesia in particular stands out in this rate-cutting environment. The region is a haven due to the exposure to commodity prices, a consumer resurgence and high dividends. In the 2007 and 2009 rate cuts, ASEAN was an outperformer among EM regions.”
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