DBS Sees Risks BI Rate Cut Cycle Is Delayed

DBS states a BI shift to an easing cycle will require IDR stability and greater clarity around the Fed terminal rate, see below for more details.

"10Y IDR bond yields rose to near 10-month high in the past week, mirroring moves in the UST yields as well as on the news of a heavier debt issuance calendar for 4Q23. The latter has challenged a favourable supply-demand dynamic for IDR bonds, resulting a repricing in the yields. While a 7% level on the 10Y yield is often viewed as attractive levels, the valuations are less attractive with a narrower ~220bpbuffer (ID-US 10Y yield) vs the pre-pandemic2018-2019 levels of over ~400bp. Real rates (inflation-adjusted) will be more attractive, once the currency settles into a range.

On the benchmark rate, we expect the BI to keep rates on hold until the 1H24. Shift towards a rate easing cycle will require confidence over the rupiah direction as well as clarity on the US terminal rate."