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Home > Banking & Finance



INDONESIA UNVEILS 439T RUPIAH BOND SCHEME

Central bank purchasing government bonds in 2021, 2022 to provide cheaper
financing for Covid-19 relief measures
Wed, Aug 25, 2021 - 5:50 AM
UPDATED Wed, Aug 25, 2021 - 5:50 AM
Indonesia's Finance Minister Sri Mulyani Indrawati says the agreement would
bring down the government's interest expense to roughly 2.2% of GDP in 2021,
from an estimated 2.4%.
PHOTO: REUTERS

Jakarta

INDONESIA'S central bank will purchase government bonds worth up to 439 trillion
rupiah (S$41.4 billion) in 2021 and 2022 to provide cheaper financing for the
government's Covid-19 relief measures, senior officials said.

The fiscal deficit financing scheme is similar to an agreement Bank Indonesia
(BI) had with the finance ministry last year to fund ballooning healthcare and
welfare bills amid the pandemic, which authorities said was a one-off measure.

Investors and economists have raised concerns about the scheme's effects on
inflation and the rupiah.







In a call with investors on Monday, BI governor Perry Warjiyo cited a rise in
infections since June, driven by the Delta variant, as the main reason for the
agreement under which BI will purchase up to 215 trillion rupiah worth of
tradeable bonds in 2021 and 224 trillion rupiah in 2022.




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The bonds will carry a floating interest rate equal to BI's three-month reverse
repo rate - currently at 3.06 per cent, but the central bank will return to the
government interest payments for bonds worth 58 trillion rupiah in 2021 and 40
trillion rupiah in 2022.

''I cannot imagine buying vaccine, (paying for) medical expense, by issuing
government bonds in the market with the cost of now about 6.3 per cent. I cannot
comprehend it,'' Mr Warjiyo said, referring to the current yield of the
benchmark 10-year bond.

Mr Warjiyo and Finance Minister Sri Mulyani Indrawati stressed that the
agreement will not compromise BI's independence.

BI would continue its plan to reduce liquidity in the banking system next year,
said Mr Warjiyo, who also argued that the bank's quantitative easing measures
would be more effective by cooperating with fiscal authorities.

At a press briefing on Tuesday, the governor said the central bank was mindful
of the agreement's impact on inflation, but he does not expect price pressures
to heat up before 2023.

He also reiterated that BI's earliest consideration for a rate hike would be at
the end of 2022.

Ms Sri Mulyani said the agreement would bring down the government's interest
expense to roughly 2.2 per cent of GDP in 2021, from an estimated 2.4 per cent.
She said that ratio will be maintained over the next several years, providing
greater fiscal headroom for other spending.

''The bond purchases by BI could also limit the potential rise in (Indonesia's)
bond yields amid a potential Fed tapering next year,'' said Josua Pardede, an
economist with Bank Permata. ''So I think this will be well accepted by
investors.''

Since the start of the pandemic, BI has cut its benchmark rate by a cumulative
150 basis points to a record low of 3.50 per cent and injected more than US$57
billion of liquidity into the financial system. REUTERS







 * bank indonesia
 * bonds

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