BI 7 DRRR at 3.50%, Maintaining 2Q22 GDP. Other than low May CPI at 2.58% YoY (Vs. BI’s target of 3+/-1%), NHKSI Research sees that BI 7DRRR was maintained at 3.50% to maintain the growth momentum of 2Q22 GDP, as capital outflow is still under control. Meanwhile, May forex reserves was at USD 135.6 billion, making room for BI intervention to rupiah which is closing in on IDR14,900/USD.

Corporate Bonds
ADHI Repays Maturity Bonds. PT Adhi Karya (Persero) Tbk. (ADHI) has paid off the principal and interest on the bonds in June 2022. In 2022, ADHI has also issued Shelf-Registered Bonds III Phase III 2022 on May 25, 2022 with a total principal amount of IDR 3.75 trillion. Based on a report by PT Pemeringkat Efek Indonesia, ADHI has two maturing bonds with a total value of Rp3.55 trillion. This bond consists of Shelf-Registered Bonds II Phase I Year 2017 maturing on June 21, 2022 and Shelf-Registered Bonds II Phase II Year 2019 Series A with maturity June 25, 2022. (Bisnis Indonesia)

Domestic Issue
BI Strategy to Prevent Stagflation. Bank Indonesia (BI) has a way to prevent stagflation from occurring in Indonesia, by suppressing prices so there is no higher inflation spike. It will be taken together with the Ministry of Finance in terms of fiscal policy through steps such as increasing the budget for subsidies, especially for energy. With this additional expenditure, the government does not have to increase the price of fuel oil to electricity that have been subsidized. As a result, the horrific spike in inflation in terms of administered prices could be prevented. (CNN Indonesia)

Negative Real Interest Rate to Form in July. In addition to the Statutory Reserves which rose to 7%, NHKSI Research sees BI needs to raise the BI 7DRRR by a moderate level of 25 bps in July, anticipating ahead of the curve, amid the potential for higher inflation in 3Q22. The BI 7DRRR and FFR disparity narrowed to 175-200 bps, making domestic interest rates less attractive. With inflation in June expected to reach 4% YoY and BI 7DRRR still at 3.50%, a negative real interest rate will be formed. Similar to how the US inflation is up to 8.6% YoY, but FFR at only 1.50%-1.75%.

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