(Bloomberg) — Indonesian government bonds fell for the first time in nearly four months as a weaker rupiah raised the risk that the country’s central bank would halt interest rate cuts.
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On Friday, the benchmark 10-year Treasury yield rose 10 basis points to 6.64%, the biggest increase since June 14. The rupiah became the second worst-performing currency this week on the back of a stronger dollar as traders unloaded their bets on the remaining half of a -point rate cut by the Federal Reserve.
Read: Indonesian bond bulls say a series of rate cuts will keep them rising
The rupiah’s fall could deepen further as rising tensions in the Middle East increase demand for safe-haven assets such as the dollar and questions over the sustainability of China’s recent gains weigh on emerging market currencies. There is.
Barclays analysts Brian Tan and Audrey Ong said in a note to clients that the rupiah’s sharp rise “increases the risk that Bank Indonesia will be forced to pause its rate-cutting cycle.”
“The current base case is for the BI to cut rates by 25 basis points in all three remaining meetings this year, followed by two more cuts in 2025,” analysts said. “If there is an October hiatus, we would be inclined to revise our outlook for 25 basis point rate cuts in November and December of this year, followed by two further rate cuts in 2025.”
The decline in bonds was the biggest since December 2020, following a rise in rupiah-denominated notes last quarter. The rupiah on Friday fell 0.4% to 15,488 rupiah to the dollar.
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