Bank Indonesia Will Use Dollars to Buy Government Bonds

Bank Indonesia will use dollars to buy rupiah government bonds in order to manage cash reserves and maintain the stability of the currency, it announced today. 

The central bank will buy the debt at special auctions, said Hendar, Bank Indonesia’s director of monetary policy, who goes by only one name. 

“We’ll hold auctions if the rupiah depreciates because of investors selling government bonds,” he said. “With this tool, the central bank can manage the volatility of the currency, and at the same time it will add to Bank Indonesia’s stock of government bonds.” 

Indonesia’s growth outlook and relatively high yields are luring funds from developed nations with near-zero interest rates, creating volatility in the rupiah. Another round of so- called quantitative easing, increasing the amount of U.S. funds available to be invested abroad, looks more likely after the Federal Reserve said yesterday it was prepared to employ additional tools to spur the world’s largest economy. 

The rupiah strengthened 0.6 percent to 8,533 per dollar as of 4:43 p.m. in Jakarta and has advanced 5.2 percent this year. Bank Indonesia left borrowing cost unchanged at 6.75 percent yesterday. It last raised its benchmark rate by 25 basis points, or 0.25 percentage point, in February. Consumer prices rose 4.61 percent in July from a year earlier, easing from a 5.54 percent gain in June. Source: Bloomberg