Weekly Briefing: Inflation, Bonds Auction to Influence Market This Week 

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JAKARTA (TheInsiderStories) – Good morning. Two key events will take place this week that would have an effect to the domestic market. First is the debt auction of treasury bills and state bonds on Tuesday, from which the government seeks to raise Rp10-20 trillion rupiah.

Among the papers that will be auctioned are the 5-year, 10-year and 15-year benchmark  bonds. The auction will affect the movement of the Rupiah on Monday as foreign investors typically purchase the local unit in preparation to make bids on Tuesday.

Demand on government debt auction had been strong recently since Bank Indonesia (BI) raised the benchmark seven-day reverse repurchase rate to counter the rupiah fall. In the last government debt auction on July 17, the government raised the maximum amount of Rp20 trillion (US$1.4 billion) and received 38.2-trillion-rupiah bids.

Next key event for the week is the announcement of July’s inflation data by the Statistics Indonesia on Wednesday. BI’s Senior Deputy Governor Mirza Adityaswara said July inflation rate is seen at 3.16 percent on year, slightly higher versus 3.12 percent on year in June.

While BI’s estimate shows that inflation remains tame, which is a positive trend, market observers are still waiting for a sub-reading in the statistics showing that the domestic economy is gaining momentum. So far, inflation reading reinforced the conviction that household consumption is sluggish.

Furthermore, Investors would like to hear more details on the government’s plan to eliminate domestic market obligation policy for coal miners. Currently, the government imposes 25 percent quota of coal output for domestic consumption and a special price of $70 per ton for electricity producer PT Perusahaan Listrik Negara (PLN).

Coordinating Minister for Maritime Affairs Luhut Binsar Pandjaitan said the government wants to see higher export from the commodity and is mulling to repeat the levy policy on palm oil exports in coal. In palm oil, every tonne of export on a specific price is charged with additional levies which will then be funneled to support biodiesel production.

In coal, Pandjaitan said, the levies would be funneled to PLN. He said specifics on the policy will be discussed on a cabinet meeting on Tuesday (31/07).

Another energy-related issue that needs to be discussed by the government is the fate of Rokan oil block, which is one of the largest field in Indonesia, after its current contract expires in 2021. The current operator PT Chevron Pacific Indonesia has asked for a 20-year extension, which had been met with a similar request by PT Pertamina.

The state-owned energy producer has been quite successful in securing rights on expiring contracts, most notably is the taking over of Mahakam gas block from France’s Total. Rokan’s case, however, is different. The field is aging and its exploitation requires a special technique known as enhanced oil recovery, something that Chevron is an expert and Pertamina has relatively few experiences.

Pertamina will certainly play the “I-cover-the-fuel-subsidy-cost” card to influence the government’s decision on Rokan’s future, while Chevron can count on the US government’s clout in its lobbying attempt.

From the political sides, this week Joko Widodo and Prabowo Subianto’s coalition will announce the candidate’s name for vice president. Both candidates must register to General Election Commission not later than August 10.

Hope you have a profitable day.

Written by Staff Writer, Email: theinsiderstories@gmail.com