Sustained Bank Indonesia Support May Bolster Corporate Debt

(Bloomberg) -- A plan by President Joko Widodo to keep seeking central bank support for his government’s deficit financing until 2022 may keep interest rates low for another couple of years and bolster demand for corporate bonds.

The government will only stop asking for central bank involvement, which may include Bank Indonesia directly buying government securities, in 2022 if economic growth reaches its 2021 target of 4.5%-5.5%, the president told a group of reporters from foreign media Tuesday.

• A draft bill being prepared by a panel of experts is threatening the independence of Indonesia’s central bank and risks increasing the influence of ministers in setting monetary policy
• Bank Indonesia reiterated that its burden-sharing agreement with the government is a one-time policy, Deputy Governor Dody Budi Walujo said on Wednesday

Sinarmas Sekuritas (Jeffrosenberg Tan)

• “Some may interpret the news negatively, but at the end of the day, equity and fixed-income investors will come to a realization that such intervention will provide the market with abundant liquidity and that can only be good for asset prices, at least in the short term.”
• Corporate bonds, especially better-quality ones, will be supported. “Whether that will translate to lower-quality issuance further down the road will depend on how the Indonesian economy can recover.”

Maybank Kim Eng (Isnaputra Iskandar)

• “If the regulators fail to manage this well, it can lead to rising country risks for Indonesia which may lead to a weaker rupiah exchange rate and depressed asset prices. Overall bond yields will rise. With such risks in mind, some investors may opt for higher-quality issuance.”

Sucorinvest Asset Management (Jemmy Paul)

• “If this move leads to a prolonged low interest-rate environment, especially with the interest rates on bank deposits, then we might be able to see a broad rally in the corporate bond market.”
• “Currently sentiment for corporate bonds is still weak because of concerns over the impact of the pandemic on the financial condition of companies.”

Manulife Aset Manajemen Indonesia (Katarina Setiawan)

• “While the appetite for corporate bond market has been good due to the ample of liquidity globally right now, there’s a possibility that demand may grow stronger going forward. However, these will be influenced by how the economy recovers from this pandemic.”

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