Jakarta. Bank Indonesia, the country's central bank, has reiterated its commitment to buy the government's bonds issuance in the primary market until the end of this year to help plug the government's deficit gap, Governor Perry Warjiyo said on Monday.
"BI will continue to be present in the primary market until the end of 2021," said Perry, referring to the bank by its abbreviation.
Bank Indonesia has extended an agreement with Finance Ministry, first signed on April 16 last year, Perry said. Under the agreement, the central bank would be involved in the primary market as a non-competitive bidder to buy the government's bonds if the market failed to absorb the offerings.
President Joko "Jokowi" Widodo introduced an emergency state finance regulation in lieu of law last March, revising state budget and central bank laws to allow greater flexibility in the Covid-19 pandemic handling. Before the regulation, Bank Indonesia was only allowed to buy government bonds in the secondary market.
The regulation, which had since passed into law, also allows the government to ditch a deficit cap op 3 percent of the gross domestic product (GDP). This year, the government aimed a deficit of Rp 1,006 trillion ($71.8 billion) for 5.7 percent of GDP.
Last year, Bank Indonesia injected Rp 667 trillion into the economy through its quantitative easing program, including purchasing bonds, easing reserve and macro cyclical requirements for banks, and foreign exchange stabilization.
The central bank also cut its benchmark interest rate three times to 3.75 percent, the lowest in Bank Indonesia history, a possible policy due to Indonesia's historic low inflation amid low demand during the Covid-19 pandemic.
The country reported an annual inflation rate of 1.68 percent inflation in December, slightly accelerating from 1.59 percent a month earlier. December figure was the lowest inflation rate since the Central Statistics Agency (BPS) began collecting the data in the '60s. Perry said he was optimistic that this year inflation would remain at between 2-4 percent.
Tigor Siahaan, the president director of Bank CIMB Niaga, Indonesia's sixth-largest lender by assets, said synergy between Bank Indonesia and Finance Ministry, the Financial Services Authority (OJK), and the Deposit Insurance Agency (LPS) was able to prevent the economic crisis from spreading to the financial sector.
"Monetary and financial conditions are quite stable, and our financial system is not disturbed," Tigor said.
Jahja Setiaatmaja, the president director of Bank Central Asia (BCA), Indonesia's largest lender by market capitalization, said the stability had given a solid foundation for the economy to recover this year. Now, it was about how well the government's rein in the pandemic spread and encouraged the middle class to spend again.
"Indonesia's current problem is low human mobility due to Covid-19," Jahja said.
The central bank viewed Indonesia's economy would rebound from the recession, to expand by 4.8-5.8 percent this year, and banks' loan disbursement would grow by 9 percent, Perry said.