Harambe: CNBC: Investors are nervous as Indonesia considers letting ministers vote on monetary (Rupiah) policy
Indonesia’s parliament will be deliberating on a suite of proposals to bring the central bank and government closer — a move that could hurt investor confidence and add pressure on the currency if it materializes, said analysts.
On Monday, an expert panel presented to parliament the potential changes to the central bank law, reported Reuters. The recommendations include giving government ministers voting rights at monetary policy meetings, as well as expanding Bank Indonesia’s mandate to support economic growth and employment, said the report.
Currently, the central bank’s mandate is to maintain the stability of the Indonesian rupiah through inflation and exchange rate.
The Indonesian rupiah weakened following news of those recommendations, suggesting investors may be concerned over a potential deterioration of central bank independence. The currency depreciated even more against the greenback on Wednesday, changing hands at 14,725 rupiah per dollar in afternoon trade compared with the previous day’s close of 14,565 rupiah per dollar.
Euben Paracuelles, chief Asean economist at Nomura, said the proposal to set up a monetary board headed by the finance minister was “unusual” and not aligned with best practices of how monetary policy should be set.