The central bank introduced new instruments referred to as the Bank Indonesia Foreign currency securities (SVBI) and Foreign Currency Sukuk securities (SUVBI) at the October policy meeting. Key features of these securities include, a) issued in short-term tenors (<1Y), b) denominated in US dollars, c) intended to develop and deepen domestic debt markets at the front of the curve; d) promote interbank trading amongst the participants; e) commercial banks will be the key participant in the primary market, whilst banks as well as non-banks (includes retail, foreign investors, investment managers etc.) can tap the secondary markets. First of the auctions is scheduled for 21-Nov. The SVBIs seek to fill the gap for a short-term hard-currency instrument to attract foreign inflows, compared to the SRBIs introduced back in September which were denominated in rupiah.
Since the first auction in mid-Sep, a cumulative IDR 147trn worth SRBI bids have been awarded, with average returns on 9M and 1Y tenors at 6.99% and 7% respectively. The applicable tax rates on the SVBIs are under discussion, and these will be unrated for the time being. To improve its appeal, pricing needs to be attractive vis-à-vis other short-term dollar instruments and priced above the SOFR. The authorities have banked upon a string of capital management measures in recent months to attract inflows to beef up their defences in midst of global uncertainties. Foreign reserves slipped to a year’s low at $133.1bn by Oct23 as FX intervention was dialled up and trade surplus continued to moderate. Rupiah is still amongst the regional outperformers but erased year-to-date gains on a strong dollar in second half of the year, down -0.6% vs dollar YTD.
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