* Central bank aiming to lengthen maturity profile
* Move might only manage inflows temporarily - analyst
* Authorities wary of volatility fueling inflation
* Emerging economies stepping up measures to control inflows
Indonesia's central bank said on Wednesday it would suspend regular auctions of its three-month SBI debt, a move aimed at pushing capital inflows towards longer-dated investments.
The bank also dropped its one-month sharia SBI, replacing it with a six-month tenor.
Indonesia, which largely escaped the global economic crisis on the back of strong domestic consumption, has been an investor darling in 2010 and authorities are trying to smooth volatility in short-term instruments that could threaten financial stability.
Bank spokesman Difi A. Johansyah told Reuters that Bank Indonesia will offer one- and two-month term deposits as replacements, saying further three-month SBIs would only be issued depending on conditions and expectations.
"This is to drive excess liquidity to longer tenors," he said. Term deposits, which must be held at the central bank until maturity, are not tradeable, making them less volatile than SBIs.
Johansyah said the central bank would only issue six-month and nine-month SBIs on Wednesday, adding Bank Indonesia had not decided when it would start selling a planned 12-month SBI.
Ultra-loose monetary policies in the West have driven a flood of money towards emerging markets such as Indonesia, where government bond yields ID1YT=RR have hit record lows, the currency IDR= is at three-year highs and the stock market .JKSE is leaping into unchartered territory.
Bank Indonesia in June introduced a minimum holding period of 28 days for the purchase of its SBIs to manage outflows from Sooutheast Asia's largest economy and since then investors have switched to longer-dated SBIs.
But Wednesday's move was likely only a temporary solution, said Bank Danamon economist Helmi Arman.
"Foreign investors can buy shorter-dated SBIs at the secondary market," he said.
The move would also make it difficult for local banks to manage liquidity because they prefer to put money in short-term debt while the demand for loans was rising, he added.
Banks may, however, put money in another short-tenor BI instrument, the non-tradeable Fasbi, which has a seven-day maturity, said Arman.
Indonesia's central bank said last month it was studying options to extend the minimum holding period of SBIs to three months from the current one month in an effort to deal with capital inflows.
Countries from Brazil to Thailand have imposed measures to protect their economies from a tide of capital flooding their markets in search of higher returns.
Analysts say Bank Indonesia is concerned large capital flows could be suddenly reversed and wants to stem speculative flows.
"It's better for the central bank to limit foreign investors buying SBIs," said Purbaya Yudhi Sadewa, an economist at Danareksa Research Institute.Source:
Reuters
TEXTAREA_ID
