Indonesia adds to US$6 bil spending to stem currency, bond rout

JAKARTA: After spending more than US$6 billion to stem the exodus of foreign investors from Indonesian assets last month, Bank Indonesia has signalled it’s ready to splurge more to defend the nation’s battered currency and bonds.

The central bank offered to buy sovereign bonds worth 2 trillion rupiah from the secondary market Monday after the yield on benchmark 10-year notes spiked above 7% for the first time since early January.

The rupiah was headed for a 10th straight day of losses, the longest such run since 2013.

The rupiah has gone from Asia’s best performer to among the worst in a matter of days as risk-averse investors dumped the nation’s bonds and stocks amid mounting concerns over the impact of coronavirus on the global economy.

Bank Indonesia Governor Perry Warjiyo has pledged to continue the central bank’s intervention in the spot and forward currency market and bonds to ease volatility.

Bank Indonesia’s gross ownership of sovereign bonds is at about 12% of tradeable securities, smaller than the 20% or more seen among emerging-market central banks, according to Satria Sambijantoro, an economist at PT Bahana Sekuritas in Jakarta.

“This means Bank Indonesia still has a lot of ammunition to buy bonds from the secondary market and stabilise yields,” he said.

Even before Indonesia on Monday confirmed its first two cases of coronavirus infection, the central bank cut rates and the government announced fiscal incentives worth US$742 million for the worst-hit industries. That didn’t stop foreign investors from selling a net US$2.2 billion of bonds and stocks in February.

The rupiah fell to a low of 14,375 against the dollar Monday, its weakest since May.

The currency slumped 4.6% last month, making it Asia’s worst-performing currency.

Yield on the 10-year government bond surged 13 basis points Monday to its highest level since Jan 8.

The weakness in the rupiah also stems from drying up of dollar supplies by exporters of two of the country’s biggest commodities – coal and palm oil – due to disruption in shipments to China, Bahana’s Sambijantoro said.

“Unfortunately, the dry up in foreign exchange supply coincided with uptick in demand, with foreign investors converting back their rupiah assets into dollars as further spread of Covid-19 triggered a risk-off momentum,” Sambijantoro said. “Rupiah was just unlucky to have these misfortunes at the same time.”