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Biman Mukherji

The sudden resignation of Bank Indonesia’s governor highlights a dilemma that he and his central bank peers in the region have faced in calibrating interest rates – either tighten policy to defend weakening currencies and contain inflation, or loosen it to support pro-growth mandates – according to analysts.
Perry Warjiyo’s exit has fuelled speculation that he was under pressure to do more to support President Prabowo Subianto’s economic growth agenda.
Warjiyo, who led the Indonesian central bank for eight years, did not indicate his intention to leave until Friday, according to a Bloomberg report. He resigned on Monday nearly two years before the end of his second term.
Prabowo has targeted 8 per cent annual economic growth during his term. This target has created friction between Jakarta and Bank Indonesia due to Warjiyo’s decision to increase interest rates to bolster the rupiah, analysts say.
The central bank has raised interest rates by a cumulative 100 basis points to 5.75 per cent since May to defend the rupiah.
Volatile oil prices linked to the US-Iran war have contributed to the rupiah’s decline. After falling to an all-time low of 18,190 per US dollar on June 8, the rupiah has pared back losses but was still trading above the 18,000 mark as of Tuesday.
Gareth Leather, senior Asia economist at UK-based Capital Economics, said Warjiyo’s resignation was “bound to fuel speculation” that he was put under pressure to do more to support Jakarta’s pro-growth agenda.
Last month, Indonesia’s parliament passed legislation that empowers lawmakers to make binding recommendations for independent financial regulators and the central bank.

Leather noted that Warjiyo’s exit was the second departure of a key economic policy official under Prabowo, following the removal of Finance Minister Sri Mulyani last year and that concerns over limits on Bank Indonesia’s independence had been growing.
“This has raised fears that the government could increasingly prioritise growth over monetary stability. The central bank’s aggressive rate hikes to support the rupiah this year may have frustrated the government,” he said.
In a statement, Jakarta said Warjiyo had stepped down for personal reasons. Destry Damayanti, one of Warjiyo’s deputies, has been appointed acting governor.
Apart from the rupiah’s slide, Indonesia’s financial markets were already under pressure recently, with the Jakarta Composite Index being Asia’s worst-performing major equity market after falling 30 per cent so far this year, said Jeremy Tan, CEO of Tiger Fund Management.
“In the near term, investors are likely to stay defensive, with sentiment hinging on whether Warjiyo’s successor, beyond interim deputy governor Destry Damayanti, is sufficiently independent and credible to anchor monetary policy forward,” he said.
Biswajit Dhar, an economics professor at the Council for Social Development in New Delhi, said high oil prices were a major contributor to Asia’s “extreme financial volatility” while sustained food inflation due to the El Nino weather effect was also a risk factor.
Benchmark oil prices have traded between peaks above US$100 and around US$70 a barrel, reflecting the US-Iran war swinging between a resumption of the conflict and temporary ceasefires.
“High prices per se are not an issue, but volatility is becoming a problem for policymakers. They can use tools such as interest rates [to curb inflation], but they don’t like to do it unnecessarily because it reduces domestic investment interest,” Dhar said.

The rupiah is not the only regional currency to have come under pressure, with the Indian rupee facing selling pressure and the Philippine peso still hovering near record lows. While the Philippines has raised rates, India, which imports nearly 90 per cent of its crude oil needs, has kept them unchanged amid economic growth concerns.
On Tuesday, ANZ said in a report that the Bank of Japan would likely maintain interest rates at its policy meeting this week but could signal monetary tightening later this year due to higher inflation.
Jamus Lim, an associate professor of economics at the ESSEC Business School Asia-Pacific, said ⁠Asian economies were facing the greatest currency depreciation pressures as a result of exposure to higher import prices and weaker growth prospects.
Political pressure on central banks had been increasing worldwide, as seen in Indonesia, Lim said.
“The current Prabowo administration has shown itself to be more interventionist in economic affairs, and I would not be surprised if the resignation was driven more by an unwillingness to concede to demands from the president on interest rate direction than an inability to navigate changing economic conditions.”


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Indonesia’s Finance Minister Purbaya Yudhi Sadewa (left) shakes hands with then Indonesian central bank governor Perry Warjiyo following a press conference in Jakarta in November. Photo: Reuters

Then Indonesian central bank governor Perry Warjiyo arrives for a media briefing at Bank Indonesia headquarters in Jakarta in January 2023. Photo: Reuters

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Concerns over the independence of central banks in Indonesia and beyond have grown after Perry Warjiyo’s resignation


Concerns over the independence of central banks in Indonesia and beyond have grown after Perry Warjiyo’s resignation.


Indonesian central banker’s exit signals dilemma over rate policy, growth target

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Concerns over the independence of central banks in Indonesia and beyond have grown after Perry Warjiyo’s resignation

Concerns over the independence of central banks in Indonesia and beyond have grown after Perry Warjiyo’s resignation