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This week, we are seeing signs of a shift by Asia ex China central banks. For much of last year, most regional central banks were focused on hiking rates to respond to high inflation and support their currencies against external pressures. Comments by BOK governor earlier in the week, and BI and BNM meetings yesterday, however suggest that the focus is gradually shifting back towards growth and current hike cycles could be ending soon. In BOK's case, markets are least surprised as BOK has already hiked rates to 3.5%, a level that they had previously communicated as a likely peak. In contrast, markets were most surprised by BNM's hold decision yesterday. MYR IRS curve has been relatively steep compared to regional curves. This is due to market expectations that BNM's hike cycle would be more extended, since its hike pace has been more measured thus far. Yesterday's hold decision and the policy statement suggest that BNM has turned data-dependent, likely earlier than markets expected - MYR IRS rates fall 10-13bps in reaction.
IDR Rates - BI hiked 25bps yesterday to 5.75% and suggested that the size of cumulative rate hikes is sufficient to slow inflation. Yesterday's hike decision is likely mixed news for 10Y IndoGB yields. There were some prior market expectations that, because of the rupiah's recovery, rate hikes may no longer be needed. So, there was some disappointment on that front. On the other hand, BI comments suggests that we could already be at or close to terminal policy rates, reducing the risks of further rate hikes raising the level of IndoGB yield curve. BI also announced that it would continue selling short-term bonds to attract foreign capital inflows but halt the purchase of long-term bonds. We think that 5Y-10Y yield spread has already flattened a lot since Operation Twist was announced last year, and at current 20-25bps, there is little justification to engineer incremental flattening from here. Strong foreign inflows also reduce the need for BI to anchor government's long-term debt financing costs. YTD foreign inflows of ~IDR32tn is already larger than the growth in outstanding bonds of ~IDR29tn. I.e. Foreign investors are absorbing the bulk of net issuances. Therefore, we also don't expect 10Y IndoGB yields to reprice higher on the back of BI's announcement.
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