Indonesia: BI Will Continue Its Gov’t Bond Buying Program Through 2021

  • Bank Indonesia, the country’s central bank, has reiterated its commitment to buy the government’s bonds issuance in the primary market until the end of 2021 to help plug the government’s deficit gap, Governor Perry Warjiyo said on 4 Jan 21.
  • Bank Indonesia has extended an agreement with Finance Ministry, first signed on 16 Apr 20, Perry said.
  • Under the agreement, the central bank would be involved in the primary market as a non-competitive bidder to buy the government’s bonds if the market failed to absorb the offerings.
  • Before the regulation, Bank Indonesia was only allowed to buy government bonds in the secondary market.
  • The regulation, which had since passed into law, also allows the government to ditch a deficit cap of 3% of the gross domestic product (GDP).
  • In 2021, the government aimed a deficit of IDR1,006tr (USD71.8bn) for 5.7% of GDP.
  • In 2020, Bank Indonesia injected IDR667tr into the economy through its quantitative easing program, including purchasing bonds, easing reserve and macro cyclical requirements for banks, and foreign exchange stabilization.
  • The central bank also cut its benchmark interest rate three times to 3.75%, the lowest in Bank Indonesia history, a possible policy due to Indonesia’s historic low inflation amid low demand during the Covid-19 pandemic.
  • The country reported an annual inflation rate of 1.68% inflation in Dec 20, slightly accelerating from 1.59% in Nov 20.
  • The Dec 20 figure was the lowest inflation rate since the Central Statistics Agency (BPS) began collecting the data in the 1960s.
  • Perry said he was optimistic that 2021’s inflation would remain at between 2-4%.
  • The central bank viewed Indonesia’s economy would rebound from the recession, to expand by 4.8-5.8% in 2021, and banks’ loan disbursement would grow by 9%, Perry said.

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