Home ›› 25 Aug 2021 ›› World Biz
Indonesia’s central bank will purchase government bonds worth up to 439 trillion rupiah ($30.46 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 https://www.reuters.com/article/us-indonesia-policy-rupiah-idUSKCN24E1BU 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.
The bonds will carry a floating interest rate equals to BI’s three-month reverse repo rate - currently at 3.06%, 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%. I cannot comprehend it,” Warjiyo said, referring to the current yield of the benchmark 10-year bond.
Warjiyo and Finance Minister Sri Mulyani Indrawati stressed the agreement will not compromise BI’s independence.
