(Bloomberg) -- Bank Indonesia will buy over $9 billion worth of bonds in the secondary market next year as the government looks to refinance its pandemic-era debt.
The central bank has agreed with the finance ministry to purchase some 150 trillion rupiah of bonds in 2025 as part of its monetary operations, Governor Perry Warjiyo said in a briefing on Wednesday. That’s more than the 100 trillion rupiah of Bank Indonesia’s Covid bond holdings that’s set to mature next year, he said.
“After we considered various developments, primary money and liquidity needs, we can conduct our monetary operations plan through the purchase of government bonds in the secondary market with an amount of up to 150 trillion rupiah or possibly higher,” Warjiyo said.
Bond Sales to Spike in Emerging Asia as Covid-Era Debt Comes Due
In a so-called “burden-sharing agreement,” Bank Indonesia had bought over 800 trillion rupiah in bonds directly from the government in 2020-2022 to help fund the much larger budget deficit racked up during the pandemic years. Questions had swirled around how the central bank would unwind its holdings without unsettling the bond market. It’s currently the largest holder of the nation’s debt at 25% of the total outstanding.
The bond purchases could be Bank Indonesia’s way of conducting “hidden yield curve control,” according to Ahmad Mikail, economist at PT Sucor Sekuritas in Jakarta. The government and the central bank likely realized that there will be a much larger debt pile that needs to be refinanced next year, which will result in higher yields if investor appetite at auctions is low.
“BI has already been doing this to keep yields from rising too high, and they will do it again next year,” Mikail said. “This will assure investors that there will always be liquidity in the markets.”
The central bank always coordinates with the government on how it can enter the bond market, especially as it uses the debt as underlying assets of its own rupiah securities, which it issues to lure foreign inflows and steady the rupiah, said Deputy Governor Destry Damayanti.
“Bank Indonesia also enters the bond market to help stem excessive pressures so the yields don’t move wildly,” she said.
Bank Indonesia has bought nearly 170 trillion rupiah of government bonds so far this year through the second week of December, Damayanti said. It’s purchased 62 trillion rupiah in short-dated securities in the primary market and 107 trillion rupiah in the secondary market.
--With assistance from Norman Harsono.
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