Despite Rising Inflation, Real Bond Yields Seen as More Attractive on Rupiah Outlook

Real yield is a clear benchmark. For example, if inflation is 3.48 percent and the bond yield is 7 percent, the real yield is 3.52 percent. This is what investors consider. However, going forward, we see the rupiah as one of the determining factors for why Bank Indonesia still needs to raise interest rates, not solely because of inflation. Indonesia has a unique characteristic, namely dependence on imports. Consequently, if the rupiah continues to weaken, inflation can rise further through higher import prices. Therefore, Bank Indonesia still needs to raise interest rates to maintain rupiah stability, while the government uses fiscal policy to address supply disruptions. If the rupiah keeps weakening, it will fit in. Fiscal policy can absorb the shock, but there are limits. Our prediction is that inflation will remain below 3 percent on average. Real yields should be stable or even increase. So, in other words, the attractiveness is still there.