Prabowo Central Bank Move Sends Indonesian Rupiah to New Low

The Indonesian rupiah sank to a new low against the US dollar on Tuesday after President Prabowo Subianto said he would nominate his nephew to a senior position at the central bank.

The move, which heightened fears about government interference in monetary policy as well as the country’s financial health, caused the currency to fall by 0.3% to 16,985 to the dollar.

The rupiah, which has dropped by nearly 2% this month after falling 3.5% in 2025, but it recovered after the country’s finance minister pledged to uphold Bank Indonesia’s independence.

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Finance Minister Purbaya Yudhi Sadewa Purbaya sought to dispel market concerns, saying the country’s economic fundamentals are sound.

“We will maintain the independence of the central bank and the government as much as possible. I will not squeeze the central bank to finance our development programmes,” he said.

The presidential spokesman revealed on Monday that Prabowo’s nephew Thomas Djiwandono is one of three nominees whose names have been submitted to parliament as a governor of the central bank.

Purbaya said Djiwandono will step down from Gerindra, the president’s political party and would not be able to influence all central bank board members.

Analysts have said the rupiah looks likely to underperform compared to other Asian currencies because investors want a higher risk premium.

“Concerns preceded the appointment as investors question the [school] lunch programme and the impact of Indonesia’s bright spot – which is low fiscal debt and hard rule on 3% fiscal deficit on GDP,” Trinh Nguyen, senior economist for Emerging Asia at Natixis Corporate and Investment Banking, told Reuters.

“Now with the appointment of his nephew, Bank Indonesia will be under pressure to ease monetary conditions,” Nguyen added. “But with the rupiah weak, we do not expect the central bank to cut.”

Prabowo, a former military general, has scared investors with his targeting of 8% economic growth – up from about 5% now – and his move in September to replace the highly regarded finance minister Sri Mulyani Indrawati.

Foreign investors sold about $6.4 billion of government bonds in 2025, while the country’s budget deficit of 2.92% was the biggest in 20 years. There are now fears the country’s budget deficit cap could also be raised.