CAPITAL MARKETS - Indonesia suspends 3-month SBI auctions and replaces one-month Syariah SBI with a six-month tenor

(JAKARTA) Indonesia's central bank said yesterday it would suspend regular auctions of its three-month SBI (Bank Indonesia certificates) debt, a move aimed at pushing capital inflows towards longer-dated investments. The bank also dropped its one-month syariah SBI, replacing it with a six-month tenor.

Indonesia, which largely escaped the global economic crisis on the back of strong domestic consumption, has been an investor darling in 2010 and authorities are trying to smooth volatility in short-term instruments that could threaten financial stability.

Bank spokesman Difi A Johansyah said Bank Indonesia will offer one- and two-month term deposits as replacements, saying further three- month SBIs would only be issued depending on conditions and expectations. 'This is to drive excess liquidity to longer tenors,' he said.

Term deposits, which must be held at the central bank until maturity, are not trade-able, making them less volatile than SBIs. Mr Johansyah said the central bank would only issue six-month and nine-month SBIs yesterday, adding Bank Indonesia had not decided when it would start selling a planned 12-month SBI.

Ultra-loose monetary policies in the West have driven a flood of money towards emerging markets such as Indonesia, where government bond yields have hit record lows, the currency is at three-year highs and the stock market is leaping into uncharted territory.

But yesterday's move was likely only a temporary solution, said Bank Danamon economist Helmi Arman. 'Foreign investors can buy shorter-dated SBIs at the secondary market,' he said. -- Reuters

Source : http://www.businesstimes.com.sg/sub/news/story/0,4574,412695,00.html - Nov 11, 2010