Senior officials announced, BI will buy Indonesian government bonds in the primary market as much as Rp 215 trillion in 2021 and Rp 224 trillion in 2022.
The collaboration between the government and BI resulted in the Surat Keputusan Bersama (SKB) 3 policy, commonly known as the burden-sharing policy. SKB 3 was created to aid the government in the areas of vaccination, healthcare, and social security. The size of government bond issuance will be reduced at each auction as a result of this.
Meanwhile, Investors and economists have raised concerns about the scheme’s effects on inflation and the stability of the Indonesian rupiah.
The agreement calls for BI to buy up to 215 trillion rupiah worth of tradable bonds in 2021 and 224 trillion rupiah worth of tradable bonds in 2022, owing to an increase in infections since June due to the latest variant.
The bonds will have a floating interest rate equal to BI’s three-month reverse repo rate, which is now at 3.35 percent, but the central bank will return interest payments to the government in 2021 and 2022 for bonds worth 58 trillion rupiah and 40 trillion rupiah, respectively.
When it comes to the current yield on the 10-year benchmark bond, no one can conceive purchasing vaccines or medical expenses by issuing government bonds at a cost of around 6.5 percent..
The arrangement, according to Warjiyo and Finance Minister Sri Mulyani Indrawati, will not jeopardize BI’s autonomy.
According to Warjiyo, BI will continue its aim to reduce liquidity in the banking sector next year, and that the bank’s quantitative easing measures will be more successful if it works with fiscal authorities.
During a news conference on Tuesday, the governor stated that the central bank was aware of the agreement’s impact on inflation, but that he did not expect inflation to rise before 2023. Warjiyo also suggested that BI would consider raising interest rates by the end of 2022.
The agreement, according to Sri Mulyani, will reduce the government’s interest expense to around 2.2 percent of GDP in 2021, down from an estimated 2.4 percent now.
She stated that the current ratio would be maintained for the next many years, allowing more fiscal room for other expenditures.
The asset purchases by BI could help limit the potential rise in Indonesian bond yields as the Federal Reserve System of the United States begins to reduce its bond-buying program, known as tapering.
Since the outbreak, BI has slashed its benchmark rate by 150 basis points to a record low of 3.50 percent, injecting more over $57 billion in liquidity into the financial sector.
Interested in buying buy Indonesian government bonds?
It is possible to create a securities account and buy Indonesian government bonds with a Iocal broker for nationals and foreigners/expats who live in Indonesia but you must hold a residence permit/KITAS or KITAP.
In most cases, the following actions must be taken in order to buy Indonesian government bonds :
- Attach a copy of your passport to your application
- Complete the broker-provided agreement form
- Make a deposit; the amount varies per broker
- Receive the account’s approval
However, for an individual foreign investor who does not have a KITAS/KITAP and Indonesian tax number (NPWP) it is very difficult, perhaps even impossible, to open a securities account in Indonesia. But not all brokers have the same policies and therefore you are advised to contact brokers and inquire about their exact policies regarding foreign clients. For example, some brokerages will approve an account for an expat who does not have a NPWP (a KITAS/KITAP is still required).
The Indonesia Stock Exchange’s official website has a comprehensive list of brokers engaged in the country’s secondary market. Before you decide to become a client and buy Indonesian government bonds, conduct some research on the broker because it has been reported that Indonesian brokers (particularly smaller ones) have embezzled their clients’ funds.
The IDX keeps track of the brokers who are members, but does not publish any early findings. Only when the IDX chooses to suspend a broker owing to irregularities will an announcement be published, but by then it is frequently too late for investment clients to withdraw their funds.
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