The only candidate to run Bank Indonesia says she will be 'pro-growth'

Destry Damayanti sat before the DPR on Wednesday for her fit and proper test, the hearing parliament holds before it confirms someone in a senior state job. Nikkei Asia reports that she set out a "pro-growth" direction for Bank Indonesia and said she would work closely with the government and with parliament, while insisting the central bank keeps its independence. She has been acting governor since the job fell vacant, and she is the only name on the list, so the hearing is a confirmation rather than a contest.

"Pro-growth" is a signal about a trade-off. A central bank's main tool is its policy rate, the interest rate that sets the price of borrowing across the whole economy. Cut it and loans get cheaper, businesses invest more and hiring picks up. But cheaper rupiah savings also make the currency less attractive to hold, and a weaker rupiah raises the price of everything Indonesia buys from abroad, from fuel to wheat. Leaning towards growth means accepting more of that risk.

The independence question is the other half. Central banks are kept at arm's length from governments for a practical reason: a government chasing a growth target usually wants cheap money, and the bank's job is to be able to say no when prices or the currency cannot take it. Promising independence and promising close work with the government and the DPR are not the same promise, and which one holds will only show in the first decision where the two point different ways.

Why it matters

If you have a mortgage, a motorcycle loan or a business overdraft, this hearing settles who will be setting the rate you pay. A pro-growth governor is good news for borrowers in the short run, and less good for anyone whose costs move with the rupiah, which in practice means anyone who buys imported food, fuel or medicine. Watch her first rate decision, and watch what happens the first time the government wants a cut and the currency says otherwise.