Perry Warjiyo Resigns, Economist: Rupiah to IHSG Can Be Depressed

JAKARTA - Indonesian economist from the Strategic and Economic Action Institution (ISEAI), Ronny P Sasmita, assessed Perry Warjiyo's resignation from the position of Governor of the Bank of Indonesia (BI) was not merely a change of officials, but an institutional shock or institutional shock.

According to him, the figure of the central bank governor has an important role in reflecting the credibility of monetary policy, the consistency of interest rate direction, and communication to market participants.

"So the impact will be very determined by timing, the reason for withdrawal, and who replaces him," he told VOI, Monday, July 27.

Ronny assessed that the initial reaction to the rupiah exchange rate was potentially negative, because the foreign exchange market is generally very sensitive to uncertainty, especially when there is a perception that the independence of the central bank can be disrupted or a change in policy direction occurs.

According to him, if Perry's resignation is not accompanied by clear and convincing communication from the authorities, the rupiah risks being under pressure in the short term.

He added that this condition was not caused by fundamental changes in the economy, but rather an increase in Indonesia's risk premium so that global investors demanded higher risk compensation.

In the stock market, Ronny assessed that the impact would be more diverse, and the movement of the Composite Stock Price Index (JCI) would not only be influenced by monetary stability, but also expectations of liquidity and interest rate direction.

"If the market assesses Perry Warjiyo's replacement as more "dovish", the JCI could rebound due to expectations of increased liquidity. But if what emerges is uncertainty about the direction of policy or political intervention, then the potential for "capital outflow" will dominate and the JCI could be corrected. So here it's not about who is leaving, but whether the policy regime changes or not," he explained.

Meanwhile, Ronny estimates that the government bond market will be the sector that responds the fastest to these developments, and the yield of the State Securities (SBN) has the potential to increase as the risk premium demanded by investors increases.

He added that doubts about the continuity of monetary policy, which has been considered capable of maintaining inflation and rupiah stability, can also trigger yield increases, even without changes to the Bank Indonesia benchmark interest rate.

"This yield increase can occur even without a change in the BI Rate, because the confidence factor plays a big role in the bond market," he said.

Overall, Ronny views this situation as an important test for the credibility of Indonesia's monetary institutions.

He argues that negative impacts can be minimized if the government and related authorities are able to ensure that the leadership transition process takes place smoothly, transparently, and based on the principle of meritocracy.

"But if it actually creates the perception of politicization or ambiguity in policy direction, then the effect can continue, where the rupiah will be pressured, yields rise, and market volatility increases," he said.

Ronny emphasized that market participants basically did not mind the change of leadership, which was more feared, was the emergence of uncertainty without a clear direction.

Therefore, he assessed the success of the management of the transition period at Bank Indonesia in the next few weeks would be a determining factor in maintaining market confidence.