Indonesia’s Finance Minister Sri Mulyani Indrawati announced that central bank agreed to buy a total of IDR574.59 trillion (US$39.74 billion) of low-yielding government bonds to help fund the economic recovery programme. The bond-buying programme aimed to help finance the 2020 fiscal deficit, a forecast to reach 6.34% of GDP, triple than the initial plan of 1.76% in reason of government spending to fight the outbreak while revenue drops. A part of the bonds, approximately IDR 397.56 trillion will be used to finance public interest programmes, the cost will be fully carried by the central bank.
The rest will carry interest rates below the central bank's 3-month reverse repurchase rate. This part will be used to support business recovery schemes. Finance minister Indrawati said that the policy objective is to invoke confidence in the healthcare response and economic recovery. The scheme of the bond will be one-off policy and the debt is tradeable, whichever allows Bank Indonesia (BI) to use the bond beneficial to the monetary operation.
BI Governor Perry Warjiyo explains that the scheme will have a small impact on this year's inflation that in reason of weak demand has been hitting a 20-year low in June, and the central bank will continue to assess the impact on future rupiah exchange rate and inflation. Warjiyo also includes that the scheme will not have any implication for the bank’s monetary policy, as the capital is strong and the monetary policy framework that has been established for years will not be affected.
The central bank has reinforcing its "quantitative easing" operations in recent months to soften the blow of the economic slowdown. BI has also cut its main policy rates three times in 2020 to support GDP, after four cuts in 2019. Though the benchmark 7-day reverse repurchase rate is now at 4.25%, BI's last policy review had given indication for more cuts potential.
Due to fallout from the pandemic, Indonesian government expects GDP to be within a range of a 0.1% contraction to 1% expansion this year, compared with 5% growth in 2019.
