Indonesia central bank eyes foreign investors with new FX securities
[JAKARTA] Indonesia’s central bank will launch new rupiah securities in US dollars later this month in an effort to attract more investment from foreign institutional investors and asset managers.
The new instruments – called Bank Indonesia FX Securities (SVBI) and Bank Indonesia Sukuk Securities (SUVBI) – will be traded from Nov 21, four days later than the earlier announcement of Nov 17.
The securities will replace the regular US-dollar term deposits for tenures of between one and 12 months in the central bank’s open-market operations.
SVBI and SUVBI, which were first announced at Bank Indonesia’s (BI) October policy review, are similar to Bank Indonesia Rupiah Securities (SRBI).
The latter was launched in September to attract capital inflow from non-residents. The demand for SRBI, with one-year notes yielding 7.02 per cent, now has 17 trillion rupiah (S$1.47 billion) worth held by non-resident investors.
Edi Susianto, the head of monetary management at Bank of Indonesia (BI), said on Wednesday (Nov 8) that he expects the two new instruments to sustain further improvements in the country’s foreign exchange (FX) reserves.
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The instruments promise more attractive rates as they will be offered through variable rate tender auctions. BI is looking at pricing the securities with a premium over the Secured Overnight Financing Rate.
They will be offered to both domestic and foreign investors with a minimum purchase of US$1 million, and they can be traded in the secondary market or used for repurchase transactions.
“The main purpose of issuing this instrument is market deepening, and the hope is that it will have implications for the stability of the rupiah’s exchange rate,” said Susianto.
Since August 2022, the central bank has raised interest rates by a total of 250 basis points. In late October 2023, the rupiah reached its weakest level this year as it fell to 16,000 against the US dollar. As of Nov 9 morning, the rupiah was trading at around 15,640 to the greenback.
The rupiah’s depreciation was largely due to the higher US Treasury 10-year yield of 4.9 per cent. This prompted the central bank to intervene to stabilise the currency, which in turn depleted the FX reserves slightly.
Indonesia’s FX reserves fell to US$133.1 billion in October, from US$134.9 billion the month before.
UOB Indonesia’s economist Enrico Tanuwidjaja said the new instruments will make Indonesia’s short-term bond yields more attractive to foreign investors, which will give a much needed boost to the rupiah and replenish the country’s dollar reserves.
UOB expects the size of the FX reserves to be between US$135 billion and US$145 billion by the end of the year on the back of a better outlook, especially from higher crude palm oil prices and larger inflows into Indonesia’s bond market.
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