Bond Boom in Indonesia Stymied by Oil-Driven Inflation Risks

Indonesia’s local credit market is coming under strain as the Iran war drives oil prices higher, stoking inflation risks, accelerating capital outflows and sharpening concern over the country’s creditworthiness.

Local-currency borrowing costs for top-rated issuers have climbed nearly 70 basis points this month to the highest in almost a year, as investors price in the risk that energy will feed into inflation and complicate the policy outlook. Heightened scrutiny of Indonesia’s sovereign rating is already pushing up risk premiums across the domestic debt market.