Thailand
Bank Indonesia may start unwinding debt monetisation next year
[JAKARTA] Indonesia’s central bank may start next year to sell the government bonds it bought as part of a US$58 billion debt monetisation that supported stimulus spending during the pandemic.
“We will discuss the possibilities later but based on the information that we have now, it is likely that we will roll back our government bond holding starting next year,” governor Perry Warjiyo said in a Saturday (Feb 19) interview.
Bank Indonesia (BI) will be able to “re-circulate” its debt holdings if the supply of government bonds is limited compared with the demand, he told Bloomberg Television’s, Haslinda Amin. The central bank could sell the bonds or circulate them through reverse repurchase arrangements, he added.
The so-called burden-sharing programme allows Bank Indonesia to directly buy 836.6 trillion rupiahs (S$78.6 billion) over 3 years. The central bank started its debt purchases in 2020 when Indonesia embarked on an unprecedented debt monetisation to shore up an economy battered by the coronavirus pandemic’s impact.
Such programmes are controversial, as central bank bond-buying can edge out foreign investors and stoke concern over inflation and policy independence.
Indonesia is also looking for a way to wean its economy from the fiscal and monetary stimulus it provided during the pandemic without disrupting its recovery. Warjiyo has pledged to keep interest rates at record lows unless price pressures build-up, which he said Saturday could be in the third or fourth quarter, or if financial instability warrants “preemptive” action.
Unwinding stimulus
Warjiyo spoke after the Group of 20’s finance ministers and central bank governors meeting in Jakarta, where he called on his global counterparts to coordinate their unwinding of stimulus, warning that abrupt and ill-communicated tightening could unleash volatility on emerging markets.
Under its G-20 presidency, Indonesia has highlighted the plight of developing nations wary of getting left behind in the global recovery from the pandemic. South-east Asia’s largest economy has pushed for the creation of a global health fund and equitable green financing, among other items on the agenda last week.
Bank Indonesia plans to allow greater yield flexibility to ensure government bonds remain attractive to foreign funds as US policy tightening is set to roil emerging markets. One way the central bank will do that is by pulling back in its role as standby buyer at sovereign debt auctions, which would allow the finance ministry to accept bids for higher rates, Warjiyo said.
“In short, the need for BI to buy government bonds in the primary market will be smaller as government issuance can be absorbed by the market, both foreign and domestic, and so we can maintain the yield differential as attractive,” he added.
Supported rupiah
The rupiah plunged during the Federal Reserve’s last tapering in 2013, urging Bank Indonesia to push for greater currency diversification in trade and investment to help tame foreign-exchange swings. The central bank is in talks with Singapore, India and South Korea to establish local currency settlement deals, as well as to expand the facility to cover fixed-income, non-deliverable forwards and other instruments, Warjiyo said.
He is confident the rupiah will remain supported going forward due to strong exports, attractive yield differential and the central bank’s commitment to exchange-rate stability.
“All of the factors are positive for our exchange rate, that’s the signal that I want to send to you, the market, and the investors,” he said. BLOOMBERG