Perry Warjiyo steps down, analysts warn of investor unease
July 27 (Reuters) - Bank Indonesia's Perry Warjiyo stepped down as governor on Monday, a surprise resignation that analysts said was likely to rattle investors amid lingering concerns around central bank independence.
Destry Damayanti, a senior deputy governor at BI, has been appointed as interim governor. Destry said Warjiyo had stepped down for personal reasons.
Here are some comments from analysts:
Analysts say the leadership change could pressure the rupiah
Khoongoh, head of Asia research, ANZ, Singapore
"Now, the market will be focusing on who will be the permanent replacement... this could take a few months, and in the interim, whilst you can argue there is some continuity with the deputy governor taking over, we're also entering a potentially choppy period as well. We have the FOMC meeting this week and the market is pricing in possibility of the Fed hiking rates at least one more time later this year, so that's going to potentially put pressure on the rupiah, and this latest uncertainty is not going to help with near-term sentiment.
"We had a lot of negative news since early this year, but at least recently there had been some stabilisation and the fact that S&P affirmed Indonesia's rating outlook, I think that also at least helped to calm things down a little bit. So this latest development has once again introduced uncertainty for investors."
Aninda Mitra, head of Asia macro and investment strategy, BNY Investments, Singapore
"Governor Warjiyo’s unexpected resignation comes as a market surprise, and it raises questions about the sufficiency of the broader macro stabilization efforts. The transition now underway underscores the ‘personnel is policy’ approach to the transformation of Indonesia’s macroeconomic policy institutions."
"The key uncertainty for the market is the appointment of a permanent head of Bank Indonesia and what exactly will be the central bank’s policy mandates and objectives going forward. Until these broader monetary uncertainties are addressed, or unless fiscal announcements surprise materially to the upside, the risk premia on IDR will likely remain elevated and any transitional leadership could face more stark tradeoffs between managing growth and Rupiah stability."
Rangga Cipta, chief economist, Mandiri Securities, Jakarta
"A mid-term resignation is likely to be read as negative by investors, as it may point to policy uncertainty. The bigger question is central bank independence, since a fixed term is meant to insulate the governor and an early exit tests that. We think the choice of successor will matter more for Indonesian monetary policy than the departure itself."
Christopher Wong, FX strategist, OCBC, Singapore
"There may be some knee-jerk weakness in the IDR as markets assess the implications for BI’s leadership and policy direction. However, the acting governor is likely to maintain BI’s current pro-stability stance, with rupiah stability remaining an immediate priority. Assuming an orderly transition and clear policy communication, any initial uncertainty should fade and stability should gradually return."
Dam Ahmad Samdin, Asia economist, Oxford Economics, Singapore
"The leadership change adds uncertainty over the future direction of monetary policy, leaving the rupiah vulnerable to further weakness and heightened volatility. We maintain our call for another Bank Indonesia rate hike in Q3. But delayed policy action, or a premature pivot, could ultimately necessitate a more aggressive tightening cycle down the line to restore confidence in the local currency.
With structural pressures on the rupiah yet to ease, we see few credible alternatives than for Bank Indonesia to maintain a tightening bias."
Lavanya Venkateswaran, senior ASEAN economist, OCBC Bank, Singapore
"The forward-looking risks are binary at this juncture. There is limited clarity as to whether Destry's appointment is temporary or permanent. Should it become permanent, it will send a positive signal to market participants as policy continuity would remain in place. By contrast, should this appointment prove temporary there is a risk of a continued perception overhang, and the burden of maintaining stability will fall on the eventual replacement appointee."
Radhika Rao, senior economist, DBS Bank, Singapore
"Governor Perry played a pivotal role in steering the Indonesian economy through periods of transition and external shocks, including the COVID-19 pandemic and, more recently, the crisis in West Asia. The central bank adopted a more integrated framework, under his leadership, using a mix of rate policy, liquidity tools, FX intervention, and coordination with government. This gave BI more flexibility to manage trade-offs between rupiah stability, inflation, credit growth and financial-sector resilience. The immediate handover of the leadership role will ensure policy continuity."
"Perry Warjiyo’s resignation will likely be taken negatively by the market, given he was a steady pair of hands with a good track record. A lot will depend on who takes over, with Destry, a senior deputy governor, stepping in initially. If Prabowo’s nephew (Thomas Djiwandono), as a deputy governor steps in, the market will regard this with suspicion, given this is a crucial technocratic post and BI should remain independent."
(Reporting by Ankur Banerjee, Rae Wee and Gregor Stuart Hunter in Singapore; Editing by Lincoln Feast.)
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