New chief says Bank Indonesia retains full rate autonomy

what happened

Bank Indonesia retains full authority to set its policy rates, even as the central bank works more closely with the government. New Governor Destry Damayanti made the statement in an interview with Reuters. She took charge last month after her predecessor unexpectedly resigned in late July.

Destry said closer coordination should help fiscal and monetary policymakers move in the same direction, benefiting the economy. The government has been invited to part of the central bank’s monthly policy review, while Destry attends meetings with President Prabowo Subianto. However, she said officials have no role in deciding interest-rate policy.

“When we are preparing a decision — whether to raise or cut rates, or use other incentives — we have full authority,” Destry said. Investor concerns also include possible political interference, fiscal risks, export-policy changes and transparency issues at the stock market. Bank Indonesia raised rates by a combined 100 basis points in May and June to support the rupiah, which reached its weakest level on record in June.

why it matters

The comments address investor concerns about the central bank’s independence. Markets are also focused on whether Bank Indonesia can set policy freely while coordinating with the government and supporting the rupiah.

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