INDONESIAN lawmakers are weighing changes at the central bank that include a broader mandate and a lower bar for removing senior officials, heightening investor concerns about the monetary authority’s independence.
The move sparked a slump in bonds and the rupiah and comes just days after the government revamped a “burden-sharing” arrangement with the central bank agreeing to shoulder debt costs of President Prabowo Subianto’s housing and cooperatives programmes.
Revisions are “still in the discussion stage and are being debated”, according to Mohamad Hekal, a parliamentary commission chair.
Among the possible changes are to expand Bank Indonesia’s (BI) mandate, Hekal said on Tuesday (Sep 16), without providing details. It was last revised in 2023 to include “maintaining financial system stability in order to support sustainable economic growth”, on top of its earlier objective to ensure rupiah stability.
Meanwhile, lawmakers are weighing a provision stating that BI’s board of governors could be subject to dismissal during their term of office if it is in line with the evaluation of the parliament. Current rules only allow for dismissal if the official has resigned, committed a criminal act, or was permanently incapacitated.
Central banks globally are facing pressure to support economic growth, with US President Donald Trump’s attacks on the Federal Reserve the highest-profile example of government pressure on monetary authority independence.
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The rupiah weakened 0.2 per cent after the report, reversing an earlier gain and becoming the worst-performing currency among major Asian economies on Tuesday. The one-month non-deliverable forwards slumped 0.6 per cent. The benchmark 10-year yield edged higher to 6.3 per cent, while stocks held losses.
The central bank is set to decide on its key rate on Wednesday. All but two of the 38 economists in a Bloomberg survey expect BI to hold its key rate at 5 per cent, coming after a surprise easing last month brought its total easing since last September to 125 basis points.
The latest news will likely dent investor appetite for the nation’s assets, especially after the government also ousted the nation’s finance minister, who was well known for her credibility and fiscal prudence.
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“As if that wasn’t bad enough, the independence of the central bank is being eroded, which is only going to shake confidence among investors even further and leaving the market asking ‘what’s next?’” said Michael Brown, a strategist at Pepperstone in London.
