The appointment of Agus Martowardojo as the next governor of Bank Indonesia (BI) is unlikely to prompt any policy changes that could spook the market
he appointment of Agus Martowardojo as the next governor of Bank Indonesia (BI) is unlikely to prompt any policy changes that could spook the market. Indeed, the 57-year-old is expected to maintain the central bank’s existing monetary policy, which prioritizes managing inflation and stabilizing the rupiah.
In a report released on Wednesday, international ratings agency Moody’s Investors Service predicted that the incoming BI governor would “follow the current policy prescription” implemented by Darmin Nasution, the incumbent central bank chief whose term ends on May 23.
“Consequently, our policy outlook remains unchanged, with Bank Indonesia expected to lift rates later in the year to quash price pressures stemming from stronger growth,” Moody’s wrote in its report, titled “Indonesia Outlook: Still Growing at Potential”.
On the issue of the rupiah, the ratings agency also expected Agus to follow the stance of Darmin, who is widely perceived as making room for currency depreciation to assist the economy in reining imports and boosting exports.
When asked about the weakening rupiah in his fit-and-proper test with lawmakers, Agus said that he would not move to strengthen the rupiah at a specific threshold, vowing to keep the rupiah at its fundamental rate.
Moody’s agreed with Agus, saying that a weak rupiah was sometimes necessary, such as at present with Indonesia seeing growing external imbalances. “We believe the soft rupiah mostly reflects the current account shortfall and is not necessarily a bad thing, as it acts as a natural stabilizer by boosting export receipts,” the report said.
Agus has a different career background to Darmin; the latter being known as a long-time bureaucrat who spent most of his career with BI, the Finance Ministry’s tax office and Bapepam-LK, a now-defunct government agency that used to supervise Indonesia’s capital market.
Meanwhile, Agus’ appointment as finance minister in 2010 was his maiden position in government. He was better known as a top banker with 20 years of experience in the banking industry, including a stint as president director of the state-run Bank Mandiri, currently the nation’s largest lender by assets.
Despite the stark differences in background, the market “does not expect to see any drastic change in BI’s policy mix”, said Citi Research economist Helmi Arman.
“However, as the first governor with extensive private sector experience, the governor elect may bring fresh perspectives to the board of governors, which mostly consists of career central bankers,” he wrote in a research note released recently.
Analysts say that Agus will face notable challenges going forward during his tenure as BI governor, with Indonesia recently experiencing a surge of inflationary pressure. The year-on-year consumer price index (CPI) surprisingly topped 5.9 percent in March, higher than the central bank’s target of 5.5 percent.
In its March report titled “Pressures Mounting”, the World Bank warned that soaring inflation might persist in the near future and, consequently, curb household consumption needed to spur growth.
The US-based institution warned in the report that BI, which adopts an inflation-targeting monetary policy, “will need to gauge the risk” of higher generalized inflation; a situation that may necessitate the tightening of monetary policy. “This challenge will coincide with the term of the new central bank governor,” the World Bank said.
While BI has been known as pro-growth over the past few years, the central bank recently said that it intended to focus on stability rather than economic growth this year.
Share your experiences, suggestions, and any issues you've encountered on The Jakarta Post. We're here to listen.
Thank you for sharing your thoughts. We appreciate your feedback.