Rupiah hits record low on central bank fears
Nomination raises concerns over Bank Indonesia independence
Indonesia’s rupiah fell to a record low against the U.S. dollar as investors reacted to concerns about Bank Indonesia’s independence after President Prabowo Subianto nominated his nephew, Thomas Djiwandono, as one of three candidates for the central bank’s Board of Governors. The currency weakened to 16,985 per dollar ahead of a closely watched policy decision, extending losses that left it down nearly 2% in January after a 3.5% slide in 2025.
Markets flagged the risk that political influence could constrain the central bank’s ability to set interest rates and control inflation, a worry sharpened by the government’s ambitious growth target of 8% by 2029 from about 5% now. The nomination of a close relative of the president—currently a deputy finance minister—stoked fears that operational autonomy could be compromised, prompting capital outflows and upward pressure on bond yields.
A softer rupiah raises the cost of imports and heightens the risk of imported inflation, while raising the local-currency burden of dollar-denominated corporate and sovereign debt. Analysts warned that sustained uncertainty over governance could deter foreign investment, fuel further currency weakness and raise borrowing costs for both companies and the state.
Bank Indonesia sought to calm markets, reiterating its commitment to price stability and saying policy decisions will be guided by economic fundamentals. Officials signaled readiness to intervene in foreign-exchange markets if necessary and emphasized coordination with the government that would not undermine the bank’s mandate. Market participants said these assurances must be backed by transparent governance signals and parliamentary scrutiny of nominees to restore confidence.
Economists noted the episode underscores the tension between political growth ambitions and the technical credibility required for effective monetary policy. While coordination between government and central bank can support macroeconomic goals, perceived political encroachment risks weakening long-term credibility, complicating inflation targeting and monetary transmission.
