Hawkish continued BI. BI’s decision to revise down the 2022 inflation target to 6.3% YoY; or 30Bps-40Bps lower than the previous target of 6.6%-6.7%; indicating the potential for continued tight monetary policy by BI in the rest of the year. BI must also anticipate the Strong Dollar sentiment, with DXY holding on to its high level of 113 points (Vs. Highest Level 114), ahead of the talk of a +75Bps FFR increase in early November.
Corporate Bonds
WTON: Increasing the Cost of Goods Manufactured. PT Wijaya Karya Beton Tbk (WTON) stated that in order to reduce the increasing production load in line with the rise in fuel prices, the Company decided to increase the cost of goods manufactured. The increase in fuel prices affects logistic costs to grow, especially precast concrete, ready mix, or natural materials located far from the production center.
Domestic Issue
The increase in SBDK has not matched the BI 7DRR. Bank Indonesia (BI) noted that the Basic Loan Interest Rate (SBDK) for banks began to rise. However, the amount has not yet reached the level of the BI 7DRR increase, which has increased by 125 bps to date. In more detail, the prime lending rate has only grown by 2 bps, while the deposit interest rate has increased by 10 bps, in line with the response to the prime lending rate increase in the BI 7DRR which has a 4 month delay effect. (Tempo.co)
Recommendation
BI frontloading to reduce inflation expectations. Investors responded negatively to BI’s Hawkish move in response to overshooting inflation expectations. As of last October, Indonesia recorded core inflation at the level of 3.21% YoY; and headline inflation 5.95% YoY. Meanwhile, the rupiah exchange rate is still around the level of IDR15,500/USD. Market participants also view BI’s continued tight monetary policy as an anticipatory measure, responding to the narrowing spread between BI 7DRR and FFR.
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