Fixed Income Update 20 Mar 2025
KBVS WEEKLY FIXED INCOME UPDATE
Thursday, 20 March 2025
Central Banks Closely Monitor Trump’s Tariff Policy
Inflation trends and economic conditions have driven differing monetary policy decisions and forward expectations in Mar ‘25. Yesterday, the Central Bank of Iceland lowered its key interest rate by 25 bps, while the Fed kept its benchmark rate steady at 4.50%-with expectations of rate cuts later this year. Meanwhile, the Central Bank of Brazil raised its Selic rate by 100 bps to 14.25%. At the same time, concerns over inflation and economic growth have resurfaced as former U.S. President Donald Trump pushes for sweeping tariffs aimed at reshaping global trade. In response, the European Union is taking preventive measures, with EU Commissioner Stéphane Séjourné announcing a 15% reduction in EU steel imports starting in Apr ’25, to mitigate the impact of Trump’s proposed 25% tariffs on steel and aluminum, which could disrupt European markets.
The BI Rate stayed at 5.75%, maintaining a balanced approach between pro-growth and pro-stability policies. However, concerns over a weakening domestic economy—highlighted in reports from several global research houses—have triggered a sell-off in the stock market governance concerns, including speculation over the resignation of the Finance Minister, issues surrounding the "Koperasi Merah-Putih," recent corruption cases, ongoing legislative revisions, and delays in key government programs such as Danantara and Makan Bergizi Gratis. These uncertainties culminated in a trading halt in the stock market on Mar 18. Despite these pressures, the Rupiah and government bond (SUN) yields have remained relatively more stable compared to the stock market. While yields have risen, the impact has been mitigated by Indonesia’s still-solid economic fundamentals.
Regards,
KBVS Research Team