Destry Damayanti expects December rate hike from US central bank
Bank Indonesia is watching oil prices and the Federal Reserve closely ahead of its next rate decision, Governor Destry Damayanti said Thursday at the International Monetary Fund and World Bank Group meetings in Bangkok. The Indonesian central bank currently expects the U.S. central bank to raise interest rates in December, she said.
Bank Indonesia will set rates a week before the Federal Reserve’s October 27–28 meeting, and Damayanti said BI will keep a close eye on that meeting’s market impact. A shift in rate differentials between the two countries could weigh on the appeal of the rupiah and Indonesian bonds, she acknowledged. Still, Damayanti said she was confident that investment incentives BI has rolled out could maintain the attractiveness of Indonesian assets.
Volatile oil is the chief downside risk
Damayanti cited volatile oil prices as the main downside risk to Indonesia’s economy. Sticky global inflation and higher interest rates around the world are additional headwinds, she said, though she noted that Indonesia is not in the same fiscal bind as countries with bigger debt loads and deficits.
Foreign investors pulled back; regulators and BI responded
Foreign investors soured on Indonesia this year, in part because of broader risk-off sentiment that dimmed the appeal of emerging markets, but also because of investability and transparency concerns raised by credit agencies and index providers, according to the WSJ reporting.
Market regulators in Southeast Asia’s largest economy have since taken steps to address those issues, while Bank Indonesia expanded measures to attract foreign inflows and deepen liquidity, the report said.
Fiscal worries eased by technocrat pick at finance ministry
Expansive social programs and ramped-up fiscal support to buffer against rising living costs have stoked concern about the risk of Indonesia’s fiscal discipline unwinding, the report noted.
A recent change of finance minister initially ruffled some feathers, but the selection of Suahasil Nazara — an experienced technocrat with a solid record — has soothed some worries about erratic policymaking, analysts told the Journal.
On Thursday, Damayanti said top government officials, including the finance minister, have said they would stick to the rule limiting Indonesia’s budget deficit to 3% of gross domestic product.
Communication and coordination have improved
“Fiscal policy communication is getting much better,” Damayanti said, “and coordination with monetary policy has improved.” She described Indonesia’s economic fundamentals as “still solid.”
A new governor with growth in an expanded mandate
Damayanti has only spent a few months at the helm of Bank Indonesia, but she brings seven years in the institution’s ranks to the job and an idea of what she wants her legacy to be: impactful, inclusive, integrated, and synergy. She took the reins after the surprise resignation of her predecessor, Perry Warjiyo, and inherited a complex set of economic challenges, headlined by an energy shock that has forced many central banks, including Bank Indonesia, to tighten policy settings.
Her appointment was widely welcomed by analysts as signaling continuity — a message the central bank wanted to send amid concerns about Indonesia’s economic trajectory. Facing risks at home and abroad, and tasked with a mandate that has been expanded to include growth, Damayanti said, the job of being BI governor has rarely looked more difficult.