Friday 29 Mar 2024
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JAKARTA (Dec 16): Indonesia's government said on Tuesday it will buy government bonds back from the secondary market if needed as the rupiah slumps and government bond yields soar on the flight of capital from the country.

The Russian central bank raised its main interest rate to 17 percent on Tuesday morning, vacuuming capital out of emerging market countries and pushing the yield on Indonesian 10-year benchmark bonds to 8.514 percent, the highest since Oct 1.

The rupiah reached a fresh 16-year low of 12,930 against the dollar, although it recovered to 12,650 by 0828 GMT.

Finance Minister Bambang Brodjonegoro said the rupiah's fall was also caused by expectations of more hawkish statements coming out the Federal Reserve's Open Market Committee meeting on Wednesday.

Indonesia's Finance Ministry said that between Dec 1 and Dec 12, 11.2 trillion rupiah ($8.8 billion) of foreign money exited the government bond market, and foreign ownership of government bonds declined to 38.9 percent from 39.5 percent as capital flew out.

The yield on 10-year bonds rose 82 basis points as the price fell in December.

"We always monitor the bond market and we are prepared to buy back bonds if the bond market is under pressure," Brodjonegoro said in a joint press conference with the central bank.

Brodjonegoro said the Indonesian government's bond stabilisation framework (BSF), a safety protocol to counter massive outflows in the bond market, had not yet been activated. The protocol includes having the government and state firms buy in the secondary bond market.

Robert Pakpahan, head of the government's debt management office, said the government probably wouldn't need to deploy BSF measures until year-end.

Meanwhile, Bank Indonesia (BI) has been more active in both the bond and rupiah foreign exchange markets. Central bank deputy governor Perry Warjiyo said BI bought 1.5 trillion rupiah of bonds on Monday and another 200 million rupiah on Tuesday to offset the outflow.

Analysts at Mandiri Sekuritas said the outflow in the bond market had not yet ended, predicting from historical patterns that another 13 trillion rupiah of worth of bonds would be sold.

Warjiyo declined to disclose how much BI has intervened to aid the ailing rupiah. BI has said since October its foreign exchange reserves were at a "safe" level and it was ready for "measured intervention" to keep the rupiah in a healthy range.

 

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