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Bear steepening

BONDS

Unwinds some of yesterday's gains

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Spot USD/IDR has extended gains after a sharp rally recorded Thursday, with participants digesting Bank Indonesia's latest monetary policy decision. The rate last changes hands +30 figures at IDR14,385.

  • Bank Indonesia left its benchmark interest rate unchanged for the fourth time in a row and stuck to familiar economic projections, with Gov Warjiyo noting that the decision was "consistent with our low inflation projection and maintained rupiah stability and efforts to strengthen the national economic recovery". The Bank pledged to keep monetary policy accommodative.
  • During the subsequent Q&A session, Governor Warjiyo said that the Bank had a plan on sequencing the exit strategy from unconventional monetary policy, signalling that normalisation will likely begin with tightening liquidity via contractionary monetary operations or reserve requirement hikes, rather than raising policy rates.
  • In the post-decision commentary, J.P. Morgan and Goldman Sachs both reiterated that they expect Bank Indonesia to remain on hold through the rest of the year, albeit the latter said they see risks as "skewed in a hawkish direction".
  • On a different front, Pres Widodo told Jakarta authorities to expedite Covid-19 vaccine rollout in order to reach herd immunity by Aug. Jakarta Gov Baswedan backed the President's call, but some health experts have doubted if the target was realistic.
  • From a technical point of view, a break above the 50-DMA/May 20 high at IDR14,390/14,400 would bring May 3 high of IDR14,475 into play. Bears eye Jun 17 low of IDR14,273 for initial support, a break here would open Jun 11 low of IDR14,185.
  • USD/IDR 1-month NDF last -91 figures at IDR14,473, with bears looking for further losses towards Jun 11 low of IDR14,198. Bulls look for a jump above Jun 17 high of IDR14,565, before targeting Apr 13 cycle high of IDR14,736.
  • There is nothing of real note on the Indonesian docket for next week.