Goldman Sachs: Central Bank Independence Concerns Fuel Volatility

Goldman Sachs note that "the Indonesian Rupiah initially weakened mid-week following news that Indonesia's parliament is planning to propose a law that would give the government a larger role in influencing monetary policy. Coming on the heels of the burden sharing agreement between the BI and the Ministry of Finance with respect to bond financing, this draft bill has raised fresh concerns about whether the Central Bank's independence is being steadily eroded. However, IDR rallied back on Friday after the coordinating minister for economic affairs clarified that the government opposed the proposal by lawmakers to dilute the authority of the central bank. We think USD/IDR can grind lower as the external environment remains supportive of our bearish USD view. However, uncertainty around central bank independence may mean that the IDR continues to underperform other higher yield currencies in the NJA region (including INR and PHP)."