Indonesian Bond Yield Drops to Five-Month Low as Rate Cut Seen

  • There's room for more easing, central bank governor says
  • Two-year yield has fallen 51 basis points so far this month

Indonesian two-year bonds rose, pushing the yield to a five-month low, after the central bank said it might loosen monetary policy further.

Falling oil prices will help contain inflation and there’s still room for easing either via the policy rate or a cut to lenders’ reserve ratios, Bank Indonesia Governor Agus Martowardojo said Wednesday. The monetary authority lowered its reference rate by 25 basis points to 7.25 percent on Jan. 14 in its first reduction in almost a year.

The yield on the notes due July 2017 fell for a third day, dropping two basis points to 8.10 percent in Jakarta, according to the Inter Dealer Market Association. The yield has declined 51 basis points this month as overseas investors pumped a net 19.3 trillion rupiah ($1.4 billion) into the country’s local-currency debt.

“Bank Indonesia really wants to bring down the interest rate for the sake of economic growth," said Wiling Bolung, head of balance-sheet trading at PT Bank ANZ Indonesia in Jakarta. “Inflation is under control."

Consumer-price gains slowed for a fifth month in December, to 3.35 percent, official data show. Inflation exceeded 7 percent in the four months through August. Economic growth will pick up to 5.2 percent this year, from an estimated 4.7 percent in 2015, according to a Bloomberg survey.

The rupiah was little changed at 13,875 a dollar, according to prices from local banks. That took its drop this month to 0.6 percent.

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