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A further decline in the interest rate will not only bring a
positive impact on the macro economy but will also create a bullish
market for bonds and equities, financial analysts say.
"Our macro economy has been improving a lot thanks to the decline in
the inflation rate. With this encouraging situation, we hope Bank
Indonesia will further cut its interest rate," Fortis Investments
President Director Eko P. Pratomo said here Wednesday.
Bank Indonesia cut the benchmark rate by 0.5 percentage points early
this month to 11.25 percent, the second consecutive rate cut in that
amount, after May and July's quarter-point reductions.
Eko predicted that the central bank would further lower the rate to as
low as 10 percent early next year to take advantage of a more stable
economy.
He pointed out that with a further decline in the interest rate,
investing in the capital market would be more promising rather than
keeping money in bank savings.
"We heavily rely on the short-term funds here. The government,
therefore, needs to facilitate the development of the bonds market in
order to balance the shortage of long-term funds to finance
infrastructure projects," he noted.
Recently, the Indonesian government has intensified the development of
the bonds market, through the launching of retail bonds for individual
investors and the issuance of a regulation that allows regencies and
municipalities to issue bonds.
Mark te Riele, a director of Fortis Investments, noted that the retail
bonds would not only expand the bond market, but it would also educate
the public on investment.
"I think the important thing about the retail bonds is that it will
educate people about other alternatives for investments besides bank
savings," he said, adding, "Although the Indonesian bond market is
still small compared with those in other emerging markets, it's very
promising now."
He, however, advised individual investors that rather than buying bonds
it would be better for them to buy mutual funds. "It's safe for
individual investors to trust their funds to mutual fund managers as
they can analyze which of the equities or bonds are good investments,"
he said.
Eko cited as an example Pesona Mutual Fund, which was issued by Fortis
Investment in 1997. "After nine years, the Pesona Fund has now provided
a return of over 500 percent," he noted.
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