Fitch Rating upgrade for Indonesia months after S&P move

JAKARTA: Indonesia won a second sovereign rating upgrade this year, with Fitch Ratings raising its assessment to the second-lowest investment grade, months after S&P Global Ratings lifted the nation out of junk status. The nation’s stocks and currency rallied.

The rating on the nation’s longterm, foreign currency-denominated debt was raised one level to BBB with a “stable” outlook, Fitch said in a statement. The upgrade puts Indonesia on par with the Philippines and Portugal, which received upgrades just this month.

Indonesia’s resilience to external shocks is among the key rating drivers as policymakers focused on stability, Fitch said, echoing similar comments from S&P which returned the country to investment grade in May.

These endorsements of the nation’s economic stability are likely to help President Joko Widodo as he embarks on a US$62bil borrowing plan next year.

“With US treasury yields trending higher lately, this upgrade will help limit any rise in Indonesia’s risk premium and keep yields low,” said Handy Yunianto, head of fixed-income research at PT Mandiri Sekuritas.

“We expect overall Indonesian yields to stay relatively low despite rising US yields. The pieces lined up for Indonesia on the macro front, where we see growth bottoming out while inflation is trending down with low volatility.”

Investors have been rewarded with the nation’s local notes surging 17% this year, compared with 12% for emerging Asian bonds, according to Bloomberg indexes.

The benchmark Jakarta Composite Index rallied as much as 1.1% to a record yesterday, while the rupiah gained as much as 0.3% to 13,537 per US dollar, the highest since Dec 6, according to data compiled by Bloomberg.

Rising foreign-exchange reserves and strong economic growth are other reasons for the upgrade, Fitch said. It expects Indonesia’s gross domestic product to rise 5.4% in 2018 and 5.5% in 2019, from 5.1% in 2017. Net foreign direct investment would cover the current-account deficit over the next few years as the ease of doing business ranking improved, the firm said.

Bank Indonesia welcomed the upgrade and said it would continue its commitment to maintaining macro-economic and financial system stability to support a strong, sustainable, balanced, and inclusive economic growth.

Moody’s Investors Service may follow the other two rating companies in upgrading the country, said Josua Pardede, an economist at PT Bank Permata. Mandiri’s Yunianto expects Moody’s upgrade as early as February.