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The era of high interest rates will gradually decline, this is the impact on the investment climate
Jumat, 22 September 2023
REPUBLIKA.CO.ID, JAKARTA -- The era of high interest rates is projected to end this year. BNI Asset Management Investment Director Putut Andanawarih predicts that the increase in US interest rates will stop and tend to gradually fall in the long term.
"We see that the era of high interest rates in 2024-2026 will gradually decline," said Putut, Friday (22/9/2023).
According to Putut, cutting interest rates by the US in the future is an inevitability. Interest rates that rise too high and persist for a long time will hit the wheels of the US economy.
The Fed sees that the US economy is currently still quite solid, even though inflation is still high, so the Fed has indicated that it will raise interest rates one more time in the remainder of 2023. Based on the Fed's dot plot there will be two interest rate cuts in 2024, compared to previous expectations four times.
The Fed's interest rate expectations until the end of 2023 show a median dot plot rate of 5.6 percent. As for the medium to long term, the Fed expects interest rates to be at the level of 5.1 percent in 2024 (up from the previous estimate of 4.6 percent) and 3.9 percent in 2025 (up from the previous estimate of 3.4 percent) .
The Fed has raised its benchmark interest rate six times since September 2022 from 3.25 percent to 5.5 percent to date. In the same period, Bank Indonesia (BI) raised interest rates twice from 4.25 percent to 5.75 percent.
Putut said that the era of low interest rates would have a positive impact on the investment climate, especially the bond market or fixed income mutual funds. As of September 20 2023, the 10-year US-Treasury yield and 10-year SBN closed at 4.44 percent and 6.78 percent so that the yield spread narrowed to 2.34 percent, where the average yield spread in the past five years was around 4.77 percent.
Putut said, although bond yield spreads tend to be low and investors have recorded capital outflows in the last month, SBN yields are still quite attractive. This is considering the fundamental condition of the Indonesian economy which is considered stable.
"For this reason, investors can take advantage of the existing volatility momentum and gradually allocate investment funds to the long-duration Bond and Fixed Income Mutual Fund asset classes so that they can enjoy the potential for price increases as a result of the decline in the benchmark interest rate in the coming year," said Putut.
