Indonesia’s pace of fiscal spending likely rebounded from 2015

For the Indonesian markets, the first quarter of 2016 was quite a good start, noted DBS Bank in a report. Equities rose around 5%, while IDgov bond yields declined by an average of 115bps throughout the curve. In the first quarter of this year, net foreign flows into IDgov bonds and equities reached USD 3 billion, half of the total registered in last year. Also, the Indonesian rupiah appreciated around 4% against the US dollar. According to DBS Bank report, other regional markets also fared well in the first quarter, implying that Indonesia’s gains are not just country-specific.

The Indonesian economy appears to be performing slightly better. The fiscal spending pace likely rebounded as compared to the same period in 2015, said DBS Bank. In the first two months of this year, consumer goods rose nearly 35% y/y. The continuous inflows in the IDgov bond market are expected to have been driven by low yield environment in the global economy, added DBS Bank.

It is vital that authorities should not become content with the market’s performance in Q1 2016, according to DBS Bank. Given the persistence of the external financial risks, gathering foreign reserves is probably a better policy option at this time, said DBS Bank in its report. DBS Bank noted that it continues to be wary regarding the possible volatility in global markets in near future as markets appear to underestimate the US Fed’s rate hike intentions in 2016.