Perry Warjiyo Resigns, Economists Say BI Policy Functions Continue to Run

Acting Governor of Bank Indonesia Destry Damayanti during a press conference in Jakarta. (Photo: ANTARA)

Jember (Unej) University economic observer Adhitya Wardhono said that the function of Bank Indonesia (BI) policy continued after Perry Warjiyo resigned from the position of Governor of BI because the institution had a collective-collegial decision-making system and a clear succession mechanism.

"The appointment of the Senior Deputy Governor as the Acting Governor ensures that there is no leadership vacuum or authority to make policy decisions," he said, quoted by ANTARA, Monday, July 27.

According to him, Destry Damayanti's experience at Bank Indonesia and the financial market will certainly also provide a safe space so that it is expected to maintain the continuity of policies, especially in controlling inflation and stabilizing the rupiah exchange rate.

He said the resignation of the Governor of Bank Indonesia could certainly cause market reactions because it occurred in a very strategic position, but the impact is likely to be greater on short-term sentiment than on economic fundamentals.

In the short term, the market will respond which will be reflected in the exchange rate and the stock market, and will also be impacted on the government bond market.

However, market movements in the first one or two days should not be immediately concluded as a fundamental change in the economy.

Initial market reactions are often a process of adjustment to new information.

"The market basically pays more attention to policy consistency than figure changes. As long as monetary policy remains measured and the communication is clear, market confidence can be maintained," he said.

He explained that a greater impact could only potentially arise if the replacement process caused prolonged uncertainty or created the perception of disruption of Bank Indonesia's independence.

"I see the issue in three layers. First, whether the institutional mechanism continues to run. Second, whether the direction of monetary policy remains consistent. Third, how the market forms expectations," he said.

Aditya said that until now the legal mechanism has been running and there is no leadership vacuum, so there is no need to build excessive speculation, but it must still observe how the market responds such as exchange rates, capital flows, bond markets, and inflation expectations.

"The event needs to be seen from the continuity of institutions and policy consistency, not just from the change of figures. As long as BI continues to maintain its mandate including inflation, exchange rates, and financial system stability, market confidence can be maintained," he said.

Adhitya, who is also an expert in monetary economics, said that the market's reaction also needed to be analyzed proportionally because the movement was not only influenced by the change of the BI Governor, but many other things including global geopolitical conditions that are still in force.

"The most important thing is institutional credibility. Economic literature shows that central bank independence, clear communication, and consistency between statements and policy actions are very important in maintaining inflation expectations and market confidence," he said.