Indonesia to sell bonds to fund Prabowo’s low-cost housing

INDONESIA plans to sell government bonds to finance low-income housing projects, with the central bank agreeing to buy the debt in the secondary market.

The finance ministry will raise funds through a bond issue to expand the government’s home ownership loan facility, Finance Minister Sri Mulyani Indrawati told reporters in a briefing late on Thursday (Feb 20), without elaborating on the issuance size. Every year, the government allocates budget for a subsidised mortgage offering low down payments and cheap interest rates of 5 per cent for low-income earners.

Bank Indonesia pledged to buy the bonds in the secondary market, expanding its support for the government’s programme of providing 3 million affordable houses a year. BI had earlier agreed to buy over US$9 billion worth of bonds in the secondary market this year. Ten-year bond yields dropped about two basis points to 6.77 per cent on Friday (Feb 21).

“There is no macroeconomic stress or liquidity issue to justify a pre-commitment to buy specific issues linked to the housing market,” said Rajeev De Mello, Gama Asset Management portfolio manager, responding to BI’s readiness to buy the bonds in the secondary market.

Monetising the debt could worry foreign investors and could pressure the rupiah as they are concerned that “long-standing anchors of Indonesia’s financial stability are being weakened,” De Mello added.

This is the latest move by the central bank in showing its support for President Prabowo Subianto’s priority programmes. Previously, Bank Indonesia said it will lower the reserve requirement ratios for banks that extend mortgage loans, raising its liquidity incentives for the housing sector to up to US$4.9 billion. BLOOMBERG