According to the World Bank, the introduction of the SRBI has had unintended consequences of crowding out government borrowing, as commercial banks have reduced their holdings of government securities and turned toward BI’s new securities.
oreign investors showed a strong preference for Bank Indonesia (BI) Rupiah Securities (SRBI) over government bonds (SBN) and stocks last year, according to data from the central bank.
Non-resident investors recorded a net purchase of Rp 161.99 trillion (US$10 billion) in SRBI, outpacing the Rp 34.59 trillion net buy in SBN and the Rp 15.74 trillion net buy in stocks during the same period.
BI introduced SRBI in September 2023 as a response to the United States Federal Reserve’s aggressive tightening cycle, which began in 2022. The Fed’s benchmark interest rate hikes caused Indonesia’s government bond yield differentials to hit historic lows, sparking significant portfolio outflows that pressured the rupiah and eroded BI’s foreign exchange reserves.
To enhance its appeal, SRBI offers higher interest rates than Indonesia’s government bonds. These securities are backed by SBN held by BI as underlying assets and are classified as short-term debt instruments with maturities of six, nine or 12 months.
For instance, during SRBI auctions in early May last year, the one-year SRBI offered a return of 7.5 percent, surpassing the 6.7 percent yield on one-year SBN.
Read also: $323.4M in foreign capital pours out of domestic market: Bank Indonesia
According to World Bank’s Indonesia Economic Prospects in June 2024, the introduction of the SRBI has had unintended consequences of crowding out government borrowing. Commercial banks reduced their holdings of government securities and turned toward BI’s new securities.
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