Indonesia central bank makes first direct government bond buys

BANK INDONESIA / BI - ​JAKARTA. Indonesia's central bank made its first direct purchases of sovereign debt in primary auctions this week as foreign investors fled as officials said it had bought 4.65 trillion rupiah ($302 million) of government bonds.

The purchases follow a relaxing of rules to help keep yields steady and finance Indonesia's ballooning fiscal deficit as it ramps up government spending to tackle the coronavirus crisis.

Bank Indonesia bought 1.72 trillion rupiah in a regular government Islamic bond auction on Tuesday and 2.93 trillion rupiah on Wednesday in a "greenshoe option", Governor Perry Warjiyo and head of monetary operations Nanang Hendarsah said.

The government raised 4.02 trillion rupiah in the additional auction - with all buyers non-competitive bidders, on top of the 9.98 trillion rupiah it made in Tuesday's auction, according to the finance ministry.

Indonesia's budget deficit is expected to swell to 852.9 trillion rupiah, or 5.07% of GDP, this year, the biggest proportion in more than a decade and compared with an original target of 1.76% of GDP.

And the deficit may widen slightly, by another 12.2 trillion rupiah, if oil prices remain low and Indonesian crude averages $30.90 a barrel in 2020, the finance ministry warned.

Minas crude is trading at around $14.64.

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The rupiah sovereign bond market has seen some $9 billion of net capital outflows this year, cutting the proportion of non-resident ownership to 32% from 39% at end-2019, the ministry's data showed.

Warjiyo said Bank Indonesia had bought close to 170 trillion rupiah of bonds in the secondary market, raising its total ownership to about 430 trillion rupiah.

Before rules on the primary market were relaxed, BI was only allowed to buy treasury bills with less than 12 months maturity.

The governor said BI would only make purchases in the primary market as a last resort, limiting its debt buying to 25%-30% per auction, to maintain prudent management and limit the inflationary impact.

"We expect the market to be able to absorb most of what is being sold at regular auctions," Warjiyo told a news briefing, adding that BI has ordered commercial banks to increase their required reserves in the form of government bonds from May, which would support demand during regular auctions.

Warjiyo told a call with investors he aimed to reduce BI's bond holdings next year when overseas risk appetite returned, after ensuring the government had raised enough funding.