According to the Seday-e Sama news outlet, Erwin Gunawan Hutapea, Head of Monetary Management at the Central Bank of Indonesia, announced that from the beginning of the current calendar year through the end of September, the institution had purchased nearly 300 trillion rupiah, equivalent to approximately $16.79 billion, in government bonds.

Reuters reported that the central bank’s purchases included short-term Treasury bills in the primary market, as well as longer-maturity government bonds in the secondary market.

Sharp Increase in Bond Purchases Since July

The announced figures also show that the pace of government bond purchases by the Central Bank of Indonesia increased from late July.

Hutapea said the central bank had purchased more than 110 trillion rupiah in government bonds since July 21. At that time, total bond purchases had been reported at around 188.7 trillion rupiah.

He emphasized that the increase in secondary-market bond purchases during September was part of the central bank’s policy to inject more liquidity into the domestic market.

The move comes as Indonesian monetary policymakers have sought in recent months to strike a balance between supporting the rupiah’s value, managing monetary conditions, and providing the liquidity needed by the economy.

Why Is Indonesia’s Central Bank Buying Government Bonds?

One important reason for this policy is the relationship between central bank foreign-exchange interventions and domestic market liquidity.

To counter pressure on the foreign-exchange market and support the rupiah, the Central Bank of Indonesia may intervene in the currency market. Such measures can lead to a reduction in rupiah liquidity in the domestic market.

Purchasing government bonds can then serve as a tool for injecting liquidity back into the financial system. In this way, the central bank seeks to partially offset the contractionary effects of its foreign-exchange interventions.

Interest Rate Hikes to Support the Rupiah

Between May and June, the Central Bank of Indonesia raised its policy interest rate by a total of 100 basis points. The rate hikes were part of policymakers’ efforts to support the rupiah and counter downward pressure on the national currency.

At the same time, policymakers have also focused on maintaining an adequate level of liquidity to prevent excessive pressure on economic activity.

In effect, Indonesia’s monetary policy in recent months has pursued two objectives simultaneously: maintaining foreign-exchange market stability and supporting the rupiah, while also preventing excessive declines in liquidity and weakening economic activity.

Uncertainty Over Reports on Bond Purchases

The publication of details regarding government bond purchases in recent months has undergone changes.

Following the unexpected resignation of Perry Warjiyo, Governor of the Central Bank of Indonesia, in late July, the bank did not disclose the volume of government bond purchases in the monetary policy statements it released after its monthly board meetings.

As a result, recent comments by the head of monetary management have taken on greater importance, providing a clearer picture of the institution’s interventions in the government bond market.

Efforts to Balance Financial Stability and Economic Growth

The increase in government bond purchases in September can be viewed within the broader framework of the Central Bank of Indonesia’s monetary policy, which seeks to balance currency stability, liquidity management, and support for economic growth.

Higher interest rates can help support the national currency and contain foreign-exchange pressures, but they can also make financing conditions more difficult for the economy.

By contrast, government bond purchases can provide additional liquidity to the financial system. Accordingly, the increase in bond purchases in recent months indicates that, alongside interest-rate and foreign-exchange policies, the Central Bank of Indonesia is also using government bond market operations as a tool to manage liquidity and monetary conditions.

/IBNA