BANK INDONESIA MEETING TO KEEP RATES UNCHANGED
The focus will now switch to the central bank’s policy meeting on Wednesday, where analysts expect it to stand pat on rates.
Indonesia’s deputy finance minister, Suahasil Nazara, will represent the ministry at the review, but will have no voting rights, Purbaya said.
Trinh Nguyen, senior economist for emerging Asia at Natixis Corporate & Investment Banking, expects the rupiah to underperform against other Asian currencies in the short term as investors demand a higher risk premium for the economy.
“Concerns preceded the appointment as investors question the lunch programme and the impact on Indonesia’s bright spot – which is low fiscal debt and hard rule on 3 per cent fiscal deficit on GDP,” she said, referring to Prabowo’s school meals programme.
“Now with the appointment of his nephew, Bank Indonesia will be under pressure to ease monetary conditions,” Nguyen added. “But with the rupiah weak, we do not expect the central bank to cut.”
BUDGET DEFICIT WOES
Markets were stunned in September when Prabowo abruptly removed Indonesia’s influential finance minister Sri Mulyani Indrawati, as investors feared its hard-fought fiscal credibility could soon be eroded.
That also brought Bank Indonesia and its autonomy into the spotlight as investors fretted that independent monetary policymaking might be under pressure, with Prabowo targeting economic growth of 8 per cent by 2029 from about 5 per cent now.
Foreign investors sold a net roughly US$6.4 billion worth of Indonesian government bonds in 2025, adding to the pressure on the currency.
At 2.92 per cent of GDP, the 2025 budget deficit was the widest in at least two decades, except for the COVID-19 pandemic years, and close to a statutory cap of 3 per cent of GDP.
Daniel Tan, portfolio manager at Grasshopper Asset Management, said Prabowo’s move to appoint his nephew has further sparked jitters among investors concerned about erosion of central bank independence.
“The nomination added to existing concerns that Indonesia’s budget deficit cap could be raised,” Tan said.
Source: CNA
