A series of interest rate cuts over recent months has sparked interest in Indonesia's budding onshore interest-rate derivatives market and some market officials in Jakarta believe this could result in the market doubling by year-end.
"Given the increased interest and more bond issuance, the market could grow from about USD100 million per month to USD150-200 million per month by year-end," said an official at Standard Chartered Bank in Jakarta. One trader noted that as interest rates have fallen from over 18% last year to 16.5%, customers are looking to enter rupiah-denominated interest-rate swaps in which they pay floating and receive fixed in anticipation of further rate cuts. Other international houses offering interest-rate swaps in Indonesia are said to include Citibank, Deutsche Bank, HSBC and JPMorgan. Dealers at the firms declined to comment.
"As the credit situation improves, there will be greater liquidity," added another dealer, noting that the market is still fairly illiquid due to counterparty risk. However, he continued that he has seen inquiries for interest-rate transactions jump in the past few months, from about five to 10 per month. "There's definitely more activity," he added.
