Likely Lesser Issuances

Two central banks took a big step in monetary policy in June 2023. The US Central Bank has paused the rate hike in June 2023 meeting after raising 5% continuously since March 2022 in each of the meetings. The Fed rate stayed at 5.25%, the same as the previous meeting in May 2023. Meanwhile, China Central Bank, PBOC, cut 10 bps of the loan prime rate for 1 year and 5 years to 3.6% and 4.2%, respectively, for the first time since August 2022. The monetary change of two major countries definitely resulted from the development of the economic situation. The US economy is probably heading to a soft landing with the recession in the shadow, while China’s economy needs more stimulus to warmer the engine of growth that is still slower than expected. Looking at the global perspective, we see monetary policy provides room for the economy to stay nimble. So does the Bank Indonesia too that hold policy rate at 5.75% since January 2023. As the headline inflation keeps declining (Jun23 3.5% vs May23 inflation 4%) and the exchange rate of the Rupiah shows stability, we don’t think Bank Indonesia will still raise the policy rate this year.

Until the end of May 2023, the fiscal budget recorded a surplus of Rp 204.3 trillion or 0.97% of GDP (vs 5M22 at Rp 132,0 trillion or 0.67% of GDP).  The state revenue has reached 49% of the budget target, while expenditure is only 33%. Despite slowing commodity prices and the global growth outlook, government revenues still increase by 13% yoy and government spending realization also increased by 7% yoy. There is a possibility that a budget deficit of <2% of GDP can happen although the state budget has allocated a deficit of 2.8% of GDP in the full year 2023. Therefore, there is also a potential lower bond issuance target in the second semester of 2023. That was one of the reasons the IndoGb yield stayed below 6.5% in June 2023.