Indonesian Rupiah: Political risks temper valuation case – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad reports that the Indonesian Rupiah (IDR) and Jakarta equities underperformed after Bank Indonesia Governor Perry Warjiyo unexpectedly resigned two years before his term ends, raising concerns about political interference. While BI’s independence is under scrutiny, Haddad argues that supportive growth, manageable external metrics and undervaluation should limit further downside for the Rupiah.

Governor exit stirs policy independence worries

"IDR and the Jakarta stock price index underperformed. Bank Indonesia (BI) Governor Perry Warjiyo resigned for unspecified “personal reasons,” two years ahead of the end of his second five-year term."

"His resignation increases the risk of political interference in monetary policy."

"BI’s independence has already come under scrutiny after its mandate was broadened to support growth, raising concerns over fiscal dominance."

"Broader parliamentary oversight and the appointment of President Prabowo’s nephew to the BI's board have further heightened perceptions of political influence."

"Nonetheless, IDR downside is limited. Indonesia’s growth-inflation mix is supportive, the current account deficit is negligible, external debt is manageable, the fiscal backdrop is not alarming, FX reserves are ample, and IDR is significantly undervalued."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)