Scotiabank remains vigilant on domestic Indonesian dollar demand at quarter-end following external uncertainties

Scotiabank, in one of its latest research reports, said that it will stay vigilant on domestic Indonesian dollar demand when approaching the quarter-end and external uncertainty including US stocks, the US-China trade talks and the Brexit process.

Real yields of Indonesian government bonds remain elevated amid the nation’s easing CPI inflation. Indonesia sold IDR 18.05 trillion of bonds in the March 12 Auction that exceeded a target of IDR 15tn, with foreign investors accounting to 30.7 percent of total awarded bids.

Bond portfolio inflows are expected to resume after foreign investors pulled out a net USD 568mn from local government bond markets in the period of March 5-12, the report added.

In addition, US CPI inflation eased to 1.5 percent y/y in February from 1.6 percent y/y a month ago, while PPI inflation slid to 1.9 percent y/y from 2.0 percent y/y in January. Inflationary pressure remains tame in the world’s largest economy, reassuring that the Fed will continue to hold off on further rate hikes for now.

It will prompt foreign investors to chase higher yields in the region including Indonesia. Reuters reported on Tuesday that Indonesian incumbent President Joko Widodo holds a double-digit lead over his challenger, retired general Prabowo Subianto, citing an opinion poll released this week.

Meanwhile, several recent surveys showed Jokowi is likely to win about 55 percent of the vote, while Prabowo trails with about 32 percent. The UK Parliament voted down a no-deal Brexit and S&P500 share index closed above the critical 2,800 level are expected to boost risk appetite across the markets, Scotiabank further added.