Indonesia Boosts Asset Yields to Revive the Rupiah

The Indonesian central bank and finance ministry have decided to lift returns on local assets. This move aims to pull foreign money back into the country and strengthen the weak rupiah. The plan was announced during a press briefing at the parliament building, but officials stopped short of giving specific details. Indonesia’s currency has weakened sharply in recent weeks. Investors fear President Prabowo Subianto’s large spending plans and rising fuel subsidies, partly triggered by the Iran conflict. The stock market has fallen over 30%, and foreign ownership of Indonesian bonds is near a two‑decade low. To counter these trends, the central bank has been buying long‑dated government bonds while also intervening in foreign exchange markets. These purchases help keep the country’s borrowing costs down by preventing long‑term yields from spiking. The finance ministry has also stepped in, buying bonds temporarily to stabilize yields.The latest agreement between the two agencies could influence future monetary policy and bond auctions, though its exact effects remain unclear. Recent bond sales show the government’s 10‑year notes are yielding around 6. 9%, while one‑year bonds sold at about 7. 25%. To ease the government’s interest burden, the central bank will increase the rate it pays on cash reserves held by the state. This gesture is intended to reassure credit rating agencies and investors alike. The finance minister expressed optimism that closer coordination between fiscal and monetary authorities will restore confidence among global investors. Indonesia’s central bank had already raised its policy rate by 50 basis points in May, a larger hike than markets expected, to support the rupiah.