MACROECONOMICS - JAKARTA. Indonesia's central bank governor said on Tuesday there was no government plan to undermine his institution's independence as parliament prepares to debate a bill that would widen the central bank's mandate.
The bill awaiting parliamentary debate would expand the central bank's mandate to include economic growth and employment, in addition to price stability. It also includes proposals to overhaul banking supervision.
"There is no, in my understanding, no plan from the president himself to change the independence of the central bank," Bank Indonesia (BI) Governor Perry Warjiyo said during a call with investors.
The rupiah had weakened earlier this month after President Joko Widodo told Bloomberg News he supported the widening of the central bank's mandate, amid a broader sell-off in higher risk assets in the past two months due to rising U.S. Treasury yields.
Markets were concerned the move would erode the central bank's independence.
Commenting on the proposed additional mandate, the governor said the central bank had already considered supporting economic growth when formulating its policy.
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The discussion on the legislation has not begun, he said.
Warjiyo said the draft bill that has been reported by media was "not complete" and the central bank was still discussing it with the government.
Faisal Rachman, economist at Bank Mandiri in Jakarta, said that policymakers would have to convince markets the proposals would not disrupt BI's credibility.
"The reason behind the bill is for BI to have a bigger role in national interest. This needs to be carefully defined, to avoid markets interpreting the bill as reducing BI's independence," said Faisal.
Earlier on Tuesday, BI kept its main policy rate at a record low and trimmed its 2021 growth forecast for Southeast Asia's largest economy, while pledging to strengthen measures to keep the rupiah stable.
Warjiyo also said during the investor call that the rupiah, which extended gains after the policy announcement to trade at 14,495 a dollar at Tuesday's close, was still fundamentally undervalued.
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