The Indonesian Central Bank (BI) has purchased Rp200 trillion (US$12.9 billion) worth of government bonds as of early September to support President Prabowo Subianto’s Asta Cita economic programs, but economists are warning of potential long-term risks to monetary credibility and market stability.

M. Rizal Taufikurahman, Head of Macroeconomics and Finance at the Institute for Development of Economics and Finance (Indef), said the large-scale bond purchases had given the government fiscal breathing room to fund flagship programs.

However, he cautioned that the strategy could undermine investor confidence.

“The market may interpret BI’s intervention as fiscal dominance, where monetary policy becomes subordinated to fiscal needs. This could weaken perceptions of central bank independence and erode long-term trust,” Rizal said as quoted by Bisnis Indonesia on Wednesday, September 3, 2025.

Rizal outlined three major risks. First, fiscal dominance could dent credibility. Second, with BI absorbing most of the bonds, market depth would shrink, reducing effective price discovery and amplifying volatility during external shocks.

“This might even accelerate capital outflows as global investors worry about liquidity,” he said.

Third, injecting liquidity on such a scale risks fueling inflation and rupiah depreciation if not balanced with sterilization measures. “It provides short-term fiscal space, but long-term risks to monetary credibility, market depth, and price stability,” Rizal concluded.

BI Governor Perry Warjiyo confirmed the Rp200 trillion purchases, describing the measure as part of a burden-sharing scheme with the Finance Ministry. He said proceeds were being channeled into housing, rural cooperatives, and other pro-people programs.

BI has also injected Rp384 trillion in liquidity incentives for banks to boost lending to priority sectors aligned with Asta Cita, such as agriculture, housing, and small and medium enterprises (SMEs).

The purchases represent a sharp increase from Rp186 trillion as of August 19, 2025, with BI acquiring Rp137.8 trillion in secondary market bonds and Rp48.26 trillion in primary issuances, including Islamic securities.