Jakarta Globe, Dion Bisara & Muhamad Al Azhari | November 10, 2010
Jakarta. The central bank temporarily stopped selling three-month debt papers on Wednesday, a move analysts said was meant to minimize chances of a sudden reversal of “hot money” that has been flooding in.
 |
| Bank Indonesia temporarily stopped selling three-month debt papers on Wednesday. (Bloomberg Photo/Dimas Ardian) |
Analysts and even former Finance Minister Sri Mulyani Indrawati, now a managing director at the World Bank, were concerned about the possibility of asset bubbles forming in the financial markets, especially as quantitative easing by the United States may funnel even more hot money into the economy.
Possible moves, she said, could include tying up funds for as long as a year to lessen the risk of hot money leaving the country.
Bank Indonesia and the Finance Ministry previously hinted that they believed foreign inflows remained manageable.
But on Wednesday, the day when the central bank usually holds its regular auction of debt papers, it decided to “temporarily” stop selling three-month debt papers, known as SBIs.
Instead, it offered investors six- and nine-month papers and one- and two-month term deposits.
The move, according to Difi A Djohansyah, a bank spokesman, was “aimed to shift excess liquidity into a longer tenor of papers.”
The central bank introduced term deposits, an instrument to absorb excess liquidity, in July. Unlike SBIs, such instruments are not tradeable in the secondary market, which analysts say discourages speculators.
“I think Bank Indonesia wants to reduce the burden of the open market operations by limiting the funds in SBIs,” said Eric Alexander Sugandi, an economist with Standard Chartered Bank.
But he said he was not convinced Wednesday’s move would slow down capital inflows, “because global liquidity is very ample right now. Though it would reduce the risk of a sudden reversal in the short term, and make investors consider a longer-term investment in government or corporate bonds, or in the stock market.”
The bank has recently shown concern over possible capital outflows.
BI last week also proposed a holding period for investors who buy government bonds, but did not elaborate.
In July it changed the auction from a weekly to a monthly event and imposed a one-month holding period for SBIs in a bid to lock in the funds for longer periods.
The surge in foreign cash has boosted the nation’s balance of payments surplus in the third quarter this year.
Indonesia posted a surplus of $7 billion in the three months ended in September, compared with $5.4 billion recorded in the second quarter, central bank data shows.
The nation’s foreign exchange reserves rose to $91.8 billion at the end of October from $86.5 billion a month before.
An analyst said the surplus underscored the shift in funds from countries with slow economic growth and low returns on assets to fast-growing emerging markets like Indonesia .
“Portfolio investments to Indonesia mounted to a staggering $6.1 billion, which is close to the figure in the first quarter of 2010. By our estimates, inflows into SBIs may have contributed 40 percent of that figure.
This gives a picture of the urge that policy makers face to take action against SBI inflows,” said Helmi Arman, an economist from Bank Danamon in Jakarta.
Meanwhile, the Finance Ministry did not seem concerned that inflows could reverse.
Finance Minister Agus Martowardojo told reporters on Wednesday that he did not favor capital controls and that the country’s economic fundamentals remained sound.
Rahmat Waluyanto, the director general of debt management at the ministry, said any attempt to implement capital controls “would repel investors and put our investment grade, which we expect to get next year, at risk.”
Do you think this latest central bank effort can ease outflow risk?
SMS +62 811 991 8111 or e-mail yourview@thejakartaglobe.com
Related Articles:
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.