JAKARTA (Aug 10): Indonesian President Prabowo Subianto has nominated long-time central bank deputy Destry Damayanti as the sole candidate to be its next governor, a presidential official said on Monday, in an announcement that boosted the rupiah.

Investors have been closely monitoring the nomination process after the sudden resignation late last month of governor Perry Warjiyo for personal reasons. As senior deputy governor since 2019, Destry was the central bank's second most senior official and has been serving as the interim governor.

Reuters reported last week Destry was the front runner to take the job.

Warjiyo's departure had triggered a fresh bout of anxiety about investing in Indonesia, with confidence already waning on the Group of 20 economy amid concerns over fiscal profligacy, central bank independence, transparency issues with its equity market, as well as the impact from the Iran war.

The rupiah extended gains after news of Destry's nomination to reach its strongest level against the US dollar since June 18.

Presidential spokesperson Prasetyo Hadi announced Destry's sole nomination at a press conference. Prabowo has also submitted candidates to Parliament for members of the central bank's board of governors, including a senior deputy governor position, he said, without providing details.

Parliament, controlled by Prabowo's big-tent coalition, has one month to approve or reject the candidate. The legislature has not rejected a sitting president's nominee for a governor since 2008.

"Destry's nomination is likely to be received well by the markets, given her extensive experience within the central bank as well as domestic financial markets," said Radhika Rao, an economist at DBS.

"She has explicitly emphasised on the need to stabilise the currency and is expected to reflect policy continuity," Rao added.

Bank Indonesia has come under pressure to support Prabowo's key programmes and accelerate growth to 8%, from around 5% now, which it has had to balance with its other objectives of managing inflation and the rupiah exchange rate.

Under Warjiyo, the central bank has raised interest rates by 100 basis points this year, introduced rupiah hedging perks and used high-yielding short-term Bank Indonesia securities to attract capital inflows to try to put a floor under the rupiah.

Destry is considered as "a pragmatic and stability-oriented policymaker with a pro-growth nuance", said Fakhrul Fulvian, the chief economist of brokerage Trimegah Sekuritas.

Destry, 62, began her career as an economist, and previously worked at Citibank and state lender Bank Mandiri. She has a master's degree from Cornell University, and sat on the board of commissioners for the Deposit Insurer corporation between 2015 and 2019 before joining the central bank.

"She understands financial markets very well, so her policy stance tends to reflect the balance between inflation, rupiah stability, capital flows and the transmission of monetary policy to the domestic economy," Fakhrul said.

Before Warjiyo's departure, Bank Indonesia and Finance Minister Purbaya Yudhi Sadewa had for months disagreed over liquidity policies, including the central bank's use of high-yielding notes to attract foreign capital inflows and Purbaya's policy to manage government cash reserves with commercial banks, Reuters reported.

Earlier this month, in a joint press conference with Purbaya, Destry highlighted new measures intended to address uneven liquidity distribution among banks and encourage them to lend more.

The true test for Bank Indonesia's autonomy will be after Destry is confirmed as its chief, said Permata Bank chief economist Josua Pardede, warning risk premiums would rise if Bank Indonesia prematurely cut rates or provided liquidity to fund the fiscal agenda.

"Destry is seen as having a strong working relationship with the government and the finance minister. While that could be a strength by reducing friction between fiscal and monetary policies, markets will draw a sharp distinction between coordination and subordination," Pardede said.

The next monetary policy review takes place from Aug 18 to 19.

It was not clear whether the new governor would be appointed for a full five-year term, or the remainder of Warjiyo's tenure, which expires in 2028.

Uploaded by Tham Yek Lee