(Bloomberg) -- High rates on Bank Indonesia’s rupiah securities are drawing in more domestic funds, showing how it may sap local liquidity rather than bring in foreign capital.
Non-bank domestic investors net bought 34.4 trillion rupiah ($2.1 billion) of the instrument known as SRBI in June, a monthly record, according to central bank data. The share of such investors — which include asset management, insurance and pension funds — surged to nearly 6% last month, from about 1% in previous months.
Meanwhile, foreign investors’ net purchases fell to 40.3 trillion rupiah, from 77 trillion in May, even as their share continues to rise. The ownership proportion of local banks, the largest SRBI investors, declined.
“The lower foreign inflows and higher domestic buying in SRBI could engender more serious crowding-out effects,” Satria Sambijantoro and Drewya Cinantyan, analysts at PT Bahana Sekuritas, wrote in a note. “The instrument ends up draining domestic liquidity that could otherwise go to government bond or equity markets.”
Bank Indonesia has been offering large premiums on the rupiah bills to get foreign investors to bring their dollars onshore and bolster the rupiah. The 12-month SRBI was auctioned at a yield of 7.4% on Friday while similar-maturity government bills traded at 6.74%.
Still, foreign funds are hesitant to buy emerging-market assets given the dollar’s strength and lingering uncertainty over global interest rates, Myrdal Gunarto, an analyst at Malayan Banking Bhd in Jakarta. So it’s the local funds that are buying up SRBI for their short-term liquidity needs, he added.
BI Governor Perry Warjiyo has maintained that SRBI isn’t crowding out local bond markets, even as he signals that the auctions could be ramped up with the finance ministry reducing bond issuance this year.
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