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Indonesia central bank to directly fund $10 billion recovery programme

Rabu, 13 Mei 2020 / 13:27 WIB
Indonesia central bank to directly fund $10 billion recovery programme
ILUSTRASI. Bank Indonesia is set to fund part of the government's economic recovery programme via more bond buying.

Sumber: Reuters | Editor: Wahyu T.Rahmawati

KONTAN.CO.ID - JAKARTA. Indonesia's central bank is set to fund part of the government's economic recovery programme via more bond buying, officials said on Wednesday, even as its direct purchases of sovereign debt at auctions have stirred controversy.

Bank Indonesia (BI) will fund an estimated 150 trillion rupiah ($10.11 billion) of the programme via private purchase of government bonds with lower yields, according to BI and finance ministry officials.

The programme is part of efforts to help Southeast Asia's largest economy bounce back from the impact of the coronavirus pandemic, with economic growth this year forecast to be the weakest since 1999.

Nanang Hendarsah, the central bank's head of monetary management, said BI would buy the bonds with a higher return than the central bank pays for its monetary operations, but much lower than the market rate.

He gave an example of BI buying 10-year bonds with a yield of 4.9%, or similar to BI's 12-month term-repo rate, which is below the 8.08% offered in auctions.

"So BI is sharing the burden by about 3.2 percentage points," Hendarsah told Reuters, stressing that this meant BI would be able to absorb excess liquidity in the future in case of inflationary pressures.

Read Also: Indonesia finance minister proposes 2021 budget deficit at 3.21%-4.17% of GDP

Febrio Kacaribu, head of the finance ministry's fiscal policy office, said the government is still finalising the scheme with BI and other authorities, including the amount the government would sell to the central bank.

"The principle of this economic recovery programme is sharing burden and risks," Kacaribu said during a news conference online.

The economic recovery programme could include subsidising interest payments, capital injections into state companies, placement of funds in troubled banks to help with loan restructuring, direct investment into private companies or government guarantees on new working capital loans, he said.

BI made its first direct purchase of government bonds in an auction in late-April, after rules were relaxed on such operations to help keep yields steady and finance a ballooning government fiscal deficit.

But the move has raised questions in parliament, where BI Governor Perry Warjiyo was pressed about its inflationary impact. Warjiyo responded to MPs by pledging BI would be cautious, and denied the move was equivalent to printing money.

Kacaribu of the finance ministry said authorities would consider all potential macroeconomic risks, including on inflation and the rupiah's exchange rate.

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