BI 7-DRRR Drops 100 Bps YtD, FR0080 at Par. Decision of the Bank Indonesia Board of Governors’ Meeting (BI) cut the 7-day reverse repo rate (BI 7-DRRR) in July by 25 bps to 4% , positively responded by bond market players. Interest rates are currently the lowest in history, after BI cut to 100 bps since the beginning of this year (YtD) at 5%. The previously relatively flat Government Securities Market (SUN), closed higher with the reference series price FR0080 touching at par or YtM of 7.48%, based on Bloomberg data. The 7-DRRR BI cut will continue the positive sentiment of the June 2020 trade balance which has a surplus of USD 1.27 billion. This indicates the start of a number of global manufacturing activities, after almost all of Indonesia’s trading partner countries are still under indication of expansion. (NHKSI Research)

Pefindo Lowers the Outlook of Seven Financial Companies. Some of the companies are from the banking and financing sectors, in line with the decrease in liquidity during 2Q20. Pandemic has suppressed the company’s cash flow so that there are potential obstacles in meeting obligations. The seven companies are: Usaha Pembiayaan Reliance Indonesia (REFI) from BBB- / Stable to BBB- / Negative; Permodalan Nasional Madani (PNM) from A + / Stable to A + / Negative; Mitra Bisnis Keluarga Ventura from BBB + / Stable to BBB / Negative; Mandala Finance from A / Stable to A / Negative; Bank Capital from BBB + / Stable to BBB + / Negative; Bank Victoria from A- / Stable to A- / Negative; and Trimegah Sekuritas from A / Stable to A / Negative. NHKSI Research sees this outlook adjustment being influenced by funding from a number of companies that still rely on third parties. This provides additional liquidity pressure, amid the current tight banking lending. (Bisnis Indonesia, NHKSI Research)

Cut Rate 100 Bps YtD. BI RDG results Thursday (07/16) of the month set the BI 7-DRRR benchmark interest rate in July for 4%. The inflation rate remained low and maintained external stability, making BI cut its benchmark interest rate by 25% from June which was 4.25%. Meanwhile, interest rates are currently the lowest in history, after BI cut (cut rate) to 100 bps since the beginning of this year (YtD) at the level of 5%. NHKSI Research sees the start of economic activity after easing, but has not returned to pre-pandemic levels, causing BI to cut interest rates again. Economic activity has begun to improve as seen from the rise in retail sales, manufacturing activity, consumer expectations and increased exports. For the record, between BI and the Minister of Finance projecting Indonesia’s GDP in the 2Q20 period respectively in the range of minus 4% and minus 4.3%. In addition to the BI 7-DRRR cut rate, Bank Indonesia conducted quantitative easing up to IDR 633 trillion. Until July 14, BI has added liquidity (quantitative easing) to the banking sector, including a reduction in the Minimum Reserves (GWM) of IDR 155 trillion and monetary expansion of IDR 462.4 trillion. (NHKSI Research)

BI 7-DRRR and China’s GDP Support Bond Market Today. In addition to trimming the BI 7-DRRR interest rate by 25 bps, positive bond market sentiment came from the Chinese economy which managed to grow 3.2%. China Bureau of Statistics (NBS) recorded China’s GDP in the 2Q20 period grew 11.5%. This figure exceeded market expectations of growing 9.6% and also the previous quarter which fell 10%. This makes the 2Q20 China GDP grow 3.2% YoY annually. China’s economy which has recovered gradually, has become a positive sentiment for Indonesia as its main trading partner. Yesterday, the rupiah weakened 0.26% to a level of IDR 14,625 / USD on the spot market. Meanwhile, the BI middle rate weakened 0.11% to IDR 14,632 / USD. In the short term, investors can take advantage of the 7-DRRR BI trimming momentum by watching FR0082 and FR0080 moving in the par range. (NHKSI Research)

-REVIEW (July 16, 2020)-
FR0081 (5yr): -7.0 Bps to 101.14 (6.22%)
FR0082 (10yr): -3.6 Bps to 99.92 (7.00%)
FR0080 (15yr): -2.8 Bps to 100.11 (7.48%)
FR0083 (20yr): -1.5 Bps to 99.65 (7.53%)

UST 2yr: -0.009 point to 0.14%
UST 5yr: -0.013 point to 0.27%
UST 10yr: -0.013 point to 0.61%
UST 30yr: -0.024 point to 1.30%
German Bund 10yr: -0.022 point to -0.46%
UK Gilt 10yr: -0.027 point to 0.13%

CDS 2yr: +2.10% to 52.51
CDS 5yr: +1.74% to 127.62
CDS 10yr: +1.63% to 197.10

WTI: -1.09% to USD40.75/Barrel
BRENT: -0.95% to USD43.37/Barrel