Indonesia government sees limited impact on yields from central bank bond sales

BANK Indonesia's (BI) operation to sell some of its government bond holdings has had limited impact on yields, senior finance ministry officials said on Wednesday (Jul 27).

The central bank began offloading a small portion of its large bond holdings last week and governor Perry Warjiyo has said it would continue selling as part of its monetary policy normalisation.

BI accumulated a large sum of bonds during the Covid-19 pandemic under its quantitative easing programme. The ministry said BI currently holds about 25 per cent of total tradeable government bonds or about 1,230 trillion rupiah (US$113.9 billion) worth.

"From the statements by our friends at BI and from the governor, this programme will be done in a measured, gradual and prudent way," Luky Alfirman, head of the ministry's financing department, told a news conference.

"So the impact as of now from the (bond) offload by BI is still really limited," he added.

Finance Minister Sri Mulyani Indrawati said she has been in communications with BI to "synchronise" policy and that her plan to cut 2022 issuance target would make the bonds more attractive.

Analysts have warned that large sales by BI could hit bond yields and spark further capital outflows from the debt market at a time when investors are wary of investing in risky assets.

Indonesia's benchmark 10-year bond yield rose to 7.503 per cent last week, its highest in a month, but has since retreated.

Yield movements have been affected by global factors such as a stronger US US dollar and expectations of US rate hikes, Luky said.

The ministry's head of fiscal policy office Febrio Kacaribu told the news conference Indonesia's 2022 economic growth is expected to be more than 5 per cent. Last year's economic growth was 3.7 per cent. REUTERS