Calming influence: Perry at an event in Jakarta. He says the cental bank will intensify measures to stabilise the rupiah and reduce volatility. — Bloomberg
JAKARTA: Bank Indonesia (BI) governor Perry Warjiyo has promised that the central bank will maintain a high degree of professionalism, as the central bank’s independence is under scrutiny in the wake of Deputy Finance Minister Thomas “Tommy” Djiwandono’s nomination as a deputy BI governor.
Following BI’s two-day monthly policy meeting, Perry said in a press conference on Wednesday that whatever unfolded in the deputy governor race “will not affect” BI’s authority and execution of duties.
“It should be noted that decision-making at BI is carried out by the Board of Governors on a collective and collegial basis. We ensure that the process of policy decision-making is conducted in a professional manner with strong governance,” said the governor.
On Monday, President Prabowo Subianto nominated Thomas, his nephew, to replace former deputy BI governor Juda Agung, who resigned with immediate effect on Jan 13, according BI, and who is slated to take Thomas’ position as deputy finance minister.
Tommy is nominated alongside two other candidates: Solikin M. Juhro, an assistant governor at the central bank, and Dicky Kartikoyono, likewise an official at BI.
Perry said all the nominations originated from his recommendations to the president.
Prabowo has sent the nomination letters to the House of Representatives, which must conduct screening interviews before any of the nominees become the board member to replace Juda.
BI nominees must not belong to any political party.
Thomas has served as the treasurer of Prabowo’s Gerindra Party, but Gerindra executive and House Deputy Speaker Sufmi Dasco Ahmad said on Wednesday that Thomas had tendered his resignation from the party on Dec 31 last year.
“The recommendation of Tommy Djiwandono as a BI deputy governor came from the BI governor himself, so if you say there’ll be intervention, say, from the president, note that the recommendation came from the BI governor,” Dasco replied to a reporter’s question.
“And then, surely people should know that decision-making at BI is carried out on a collective and collegial basis. So, how can a deputy make important decisions without agreement from the others? That’s impossible,” he added.
Perry acknowledged that the nomination process had shaped “market perceptions” that in turn played a part in the recent rupiah weakening.
The currency flirted with its historic low on Monday afternoon, shortly after the news about Thomas’s nomination broke, and weakened further the following day.
Readings from Investing.com showed the rupiah trading at 16,987 rupiah per US dollar at its weakest point on Tuesday, which is the lowest level it has ever reached since the historic low of 17,300 rupiah during the 1998 Asian financial crisis.
Perry said the central bank “has undertaken and will increase the intensity” of measures to stabilise the currency and reduce volatility, noting that the measures comprised intervention in the foreign exchange market.
He added that the central bank had spent some 26 trillion rupiah to buy government bonds this year, half of which was in the secondary market.
Perry went on to say that the rupiah exchange rate “will be stable and is inclined to strengthen”, thanks to attractive yields, low inflation and “Indonesia’s economic growth prospects”.
The rupiah regained some footing shortly after Perry’s address. Bloomberg market data showed the currency trading at 16,936 rupiah per US dollar at Wednesday’s spot market closing.
Permata Bank chief economist Josua Pardede told The Jakarta Post on Wednesday that Perry’s speech strengthened the currency on account of “trust and expectations”.
When the governor stressed professionalism, “the main message is maintaining policy credibility and calming the market about policy directives going forward, including independence”, he added.
Simultaneously, the market also responded to BI’s commitment to stability through market intervention, which signalled that the central bank was ready to dampen volatility, explained Josua.
“That’s why the market responded positively, the actors read that as certainty of policy response, so the incentive to speculate or hoard US dollars diminishes,” he said.
Syafruddin Karimi, an economics professor at Andalas University, said on Wednesday that the signal “reduces concerns about the possibility of policy changing direction upon short-term pressures”.
“The market responded positively, because firm communication changed the expectation from ‘volatile rupiah’ to ‘rupiah maintained in a disciplined manner’.
“Credibility makes stabilisation efforts cheaper, one trustworthy sentence can beat many doubtful transactions,” said Syafruddin.
The monetary authority also decided on Wednesday to keep the benchmark interest rate, the BI Rate, unchanged at 4.75% but said the room for cuts remained open this year.
Perry emphasised that BI’s focus now lay on “stabilising and making the rupiah strengthen toward our economy’s fundamentals”. — The Jakarta Post/ANN
