Following Fitch’s action in December 2017, Moody’s unexpectedly upgrade Indonesia rating to Baa2 (equal to BBB, one notch above minimum investment grade) from Baa3 with stable outlook. This is a positive surprise to the market, especially bond market, given Moody’s previously stated that they maintained Indonesia rating back in February 2018. This is the third rating upgrade in less than 1 year (Fitch upgrade to BBB in Dec 2017 and S&P upgrade to BBB- in May 2017), hence we see this as an appreciation to the government reforms.
What are the reasons behind?
We see this third rating upgrade in less than 1 year as an appreciation to the government reforms that have been done so far. For the overall market, Moody’s upgrade (to one notch above minimum investment grade) and upcoming inclusion of Rupiah government bonds to Bloomberg-Barclays’s Global Aggregate Index should be positive and support fund inflows to bond market in the near term. But this have been clouded by low risk appetite and external headwinds. On currency, this could bring a temporary relief to Rupiah, before market focus back to current account/trade balance (next Monday) and FX reserve amid external volatility and rising crude oil price.