Bank Indonesia is issuing new rupiah securities to replace its existing reverse repurchase facility and “Operation Twist” bond sales to provide a more powerful tool for luring foreign funds, according to Governor Perry Warjiyo.
(Bloomberg) — Bank Indonesia is issuing new rupiah securities to replace its existing reverse repurchase facility and “Operation Twist” bond sales to provide a more powerful tool for luring foreign funds, according to Governor Perry Warjiyo.
The new instrument called SRBI will be issued starting Sept. 15 and they will substitute the central bank’s reverse repurchase operations for the 6, 9 and 12-month tenors, Warjiyo said in an investor call on Thursday. It will also expand on their Operation Twist, which only involved the outright selling of government bonds to push up short-term yields.
Read more: Indonesia Taps New Tool to Aid Rupiah as Rates Kept Steady
The SRBI promises more attractive rates as it will be offered through variable rate tender auctions. The papers will also be tradeable to both domestic and foreign investors in the secondary market. A similar FX security is in the works, Warjiyo said.
“This is more pro-market,” the governor said during the briefing, which was dominated by questions about the new securities. “This is the new era of Bank Indonesia.”
Backed by as much as 1,100 trillion rupiah in Bank Indonesia’s government bond holdings, the SRBI is aimed at creating a stronger anchor for the rupiah that’s been undercut by outflows, especially as the central bank expects as much as two more interest-rate hikes in the US.
The rupiah has weakened 1.1% so far this month, along with other major currencies in Asia. Investors have grown lukewarm to Indonesian assets, selling $127 million in bonds this August.
Josua Pardede, economist at Bank Permata in Jakarta, expects the new tool to make Indonesia’s short-term bond yields more attractive to foreign investors, helping boost the currency and replenish the nation’s dollar reserves.
“I expect the rupiah to rally on expectations of an upturn in foreign debt inflows,” added Duncan Tan, a currency and rates strategist at DBS in Singapore. “From a foreign investor perspective, the securities would offer high carry while taking little duration risks.”
–With assistance from Matthew Burgess.
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