UPDATE 1-Indonesia's rupiah hits record low on central bank independence worries

Daniel Tan, ⁠portfolio manager at Grasshopper Asset Management, said the rupiah has slid to a record low as concerns over ⁠the central bank's ‌autonomy add to persistent fiscal deficit issues. "The nomination (of Prabowo's nephew) added to existing concerns that Indonesia's budget deficit cap could be raised.

Indonesia's rupiah hit a record low against the dollar on Tuesday ‌as investors fretted about the country's central bank independence after President Prabowo Subianto nominated his nephew to join Bank Indonesia's Board of Governors.

The rupiah slid ⁠to 16,985 per U.S. dollar on Tuesday ahead of a policy decision by the central bank this week, where analysts expect the BI to stand pat on rates. The currency is down nearly 2% in January ​after dropping 3.5% in 2025. Prabowo's nephew, Thomas Djiwandono, currently a deputy finance minister, is one ‍of three nominees whose names have been submitted to parliament, presidential spokesperson Prasetyo Hadi told reporters on Monday.

Investors have worried that independent monetary policymaking in Southeast Asia's largest economy might be under pressure, as Prabowo targets economic growth of 8% by ⁠2029 ‌from about 5% now. "There may ⁠have been speculation that because Thomas is going there, the (central bank's) independence is gone. I disagree," Finance Minister Purbaya Yudhi Sadewa ‍said on Monday.

"Once they realise it's not the case, (the rupiah) will strengthen," he said, adding his ministry and ​BI will synchronise fiscal and monetary policies to spur economic growth. Foreign investors net sold roughly $6.4 billion ⁠worth of Indonesian government bonds in 2025, adding to the pressure on the currency as worries over Indonesia's widening fiscal deficit also hit ⁠sentiment.

At 2.92% of GDP, the 2025 budget deficit was the widest in at least two decades outside the pandemic years and close to the statutory cap of 3% of GDP. Daniel Tan, ⁠portfolio manager at Grasshopper Asset Management, said the rupiah has slid to a record low as concerns over ⁠the central bank's ‌autonomy add to persistent fiscal deficit issues.

"The nomination (of Prabowo's nephew) added to existing concerns that Indonesia's budget deficit cap could be raised. The latest appointment caused more ⁠doubts over BI's independence."

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