Overview
- Parliament passed the amendment by acclamation on Thursday, June 4, requiring Bank Indonesia to give greater emphasis to real sector growth and job creation alongside price and exchange-rate stability.
- The law formally empowers parliament to evaluate the performance of Bank Indonesia, the Financial Services Authority and the Deposit Insurance Corporation and makes some parliamentary recommendations binding.
- Markets reacted with renewed pressure on the rupiah, which hit a record low this year, after Bank Indonesia raised interest rates by 50 basis points last month to support the currency.
- Bank Indonesia said it supported the law during deliberations and will prepare implementing regulations to reflect the wider mandate, while analysts warn the new oversight and removal mechanisms could weaken perceived independence.
- The amendment is part of a broader financial reform package that includes demutualising the stock exchange and rules for Danantara debt papers and a minerals bourse, and observers say the key next development to watch is the publication of the full law text and BI’s implementing rules.