REPUBLIKA.CO.ID, JAKARTA -- Mandiri Sekuritas predicted that bond market would be brisk in Indonesia in 2016 if Bank Indonesia cut its benchmark interest rate (BI rate).

"Bond market would depend on two factors -- BI rate and inflation. If BI rate was raised bonds would be less attractive," Head of Debt Research of Mandiri Sekuritas Handy Yunianto said in a seminar on "Mandiri Macroeconomic Outlook" here on Monday.

The condition in 2016 will likely give room for the government to issue more bonds to raise funds to help ease the deficit pressure as a result of the shortfall in tax revenues, Handy said.

Indonesia is still facing difficult challenge with tax revenues falling much short of target.

"We believe that demand is still high for state bonds," he said.

He predicted that the market of corporate bonds would also grow in 2016. Bond issues in 2016 are predicted to reach Rp70 trillion in value, up from around Rp62.6 trillion this year.

Handy Yunianto said a cut in BI rate would also result in pruning of deposit interest rate, that investment in bonds would be more profitable.

In addition the capital flight from bond market would also be less significant as the interest rates in other investment destinations Europe and the United States are lower, he said.

Finance Director of PT Bank Mandiri Tbk (BMRI) Kartika Wirjoatmodjo predicted bank liquidity in the first quarter of 2016 would remain tight.

Kartika said the state lender would raise its deposit interest rate to prevent funds from flowing to the bond market.

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