The fortunes of rupiah are at risk of reversing

JAKARTA • Just when Indonesia’s rupiah appeared to be gaining an edge on the dollar, its fortunes are now at risk of reversing.

A proposal by lawmakers to overhaul Bank Indonesia’s (BI) mandate and its role in setting policy could raise investor concerns about the central bank’s independence — a move that could jeopardise the rupiah’s recovery from a pandemic-driven rout, according to Australia and New Zealand Banking Group Ltd.

“Any changes that could erode BI’s independence will likely give investors cause for concern,” said Khoon Goh, head of Asia research in Singapore. The “rupiah will end up under more pressure than Indo government bonds — this is what occurred when BI’s burden-sharing plan was first announced in July”.

Indonesia’s bonds and currency, risk benchmarks that traditionally move in tandem, have diverged after BI took the unusual step of monetising debt to help fund the nation’s stimulus plans. While 10-year bond yields have dropped about 35 basis points in the current quarter, the rupiah has lagged with a loss exceeding 2%, signalling discomfort by foreign investors.

A draft bill presented to the Parliament’s Legislation Committee on Monday proposed setting up a five-member monetary board to help BI to determine policy. It recommends the board be headed by the finance minister, and include the economic affairs minister, among others. — Bloomberg