Goldman Sachs: Constructive FX, But Cautious On Duration

Goldman Sachs note that at last week's meeting the "Bank Indonesia (BI) Governor reiterated that high frequency data show that the economy is recovering albeit slower than expected. In part, this reflects recent virus case resurgence that forced the government to re-impose stricter movement restrictions in Java and Bali early last week. As in other countries the vaccination program, which started on January 14, remains pivotal to the recovery path in 2021. The BI continues to see growth recovering this year, inflation remaining within its target band of 2%-4%, the current account deficit remaining within 1%-2%, and appreciation of the "undervalued" IDR. While our valuation metrics differ on this, we share the expectation of a sequential recovery through 2021 and are broadly constructive on IDR. However, we are slightly cautious on Indonesian bonds, which have been sensitive to the rise in US yields. The relatively large fiscal deficit target of 5.7% of GDP (vs. 6.3% in 2020 and pre-Covid ceiling of 3%) means the Ministry of Finance has large financing requirements again for 2021, which should also weigh on the bond market."