Govt. scores major success with retail bond

In a major underscoring of the high level of confidence in the economy, the government has raised the target for its sixth issuance of retail bonds to more than double its original target of Rp3.6 trillion, The Jakarta Globe reported.

Strong demand from investors, spurred by the 9.35% interest rate on the three-year bonds, took orders for the debt at Rp6.32 trillion by Wednesday, with two more days before the order closed.

“A number of selling agents have requested an increase in their target limit, and they have been approved,” Bhimantara Widyadjala, the director of the Finance Ministry’s Debt Management office, said on Thursday.

Widyadjala said that the finance minister would decide how much the government would accept in extra orders for the bonds next week.

The government last sold retail bonds in September 2008, raising only Rp2.71 trillion, below the target for the issuance.

Consumer confidence was at its highest level for nearly five years in July, a Bank Indonesia (BI) survey of 4,600 households in 18 cities across the country showed, Reuters reported.

"The smooth presidential election appeared to give respondents a positive signal of economic conditions," BI said.

The survey showed that the consumer confidence index rose to 115.4 in July, up from 109.1 in June. The latest figure was the highest since it hit 119.1 in December 2004. A reading above 100 means more consumers are optimistic than pessimistic.

The government plans to issue up to $3 billion in global bonds, $1 billion in global medium-term notes and the remainder in international sukuk and Samurai bonds, next year to help cover its budget deficit, Finance Minister Sri Mulyani Indrawati said in a statement to the House Tuesday.

Enthusiasm for the retail bonds came as BI on Wednesday cut its benchmark overnight rate 25 basis points to 6.50%, but signaled that its easing cycle may be nearing its end, Dow Jones reported.

"Bank Indonesia is closely watching inflationary potential in 2010, which may arise from recovery in domestic demand and rising global commodity prices," the central bank said in a press release after a monthly rate-review meeting.

"In this context, future monetary policy will be directed to anticipate the potential of rising inflation, in order to contain inflation at 5% in 2010," it added.

BI has cut its policy rate a total of 300 basis points since embarking on its policy easing in December to keep the economy afloat and as inflation continued subsiding.

Annual inflation as measured by the consumer price index slowed to 2.71% in July, a nine-year low, from 3.65% in June, the official Central Bureau of Statistics said Monday.

Although the domestic economy is expected to continue growing this year, the government expects the pace of expansion to slow to between 4% and 4.5% from 6.1% last year.

BI itself said Wednesday that economic growth this year may reach the upper end of its 3.5%-4% forecast.

Indicators:

Source: Central Statistics Agency