BI Independence Seen as Key to Maintaining Rupiah Stability

Economist from the Center of Economic and Law Studies (Celios), Nailul Huda, assesses that the independence of Bank Indonesia (BI) is the last gatekeeper for maintaining national economic stability.

“When our fiscal management is poor … there should be a final guardian held by the monetary authority that must not be intervened by anyone or anything,” Nailul said in a discussion in Jakarta on Thursday (20/8/2026).

According to Nailul, BI’s independence is important so that the central bank can carry out its function of maintaining monetary stability and the exchange rate without pressure from the government’s fiscal policy interests.

He said the experience of various countries shows that central bank dependence on the government can create problems when monetary policy is used to support fiscal needs.

Nailul explained that strengthening central bank independence is one of the lessons learned from various economic crises that have occurred since the post-World War II period.

According to him, during that period a number of central banks were still under government influence because they were needed to support development financing and post-war economic recovery.

However, the experience of high inflation subsequently encouraged a paradigm shift towards a more independent central bank.

Indonesia, he said, also underwent this change after the 1997-1998 economic crisis. The strengthening of BI’s independence was then enshrined through Law Number 23 of 1999 concerning Bank Indonesia, which was subsequently amended in 2004.

Nailul considers this independence increasingly important as capital flows open up.

According to him, when capital flows can move in and out quickly, the central bank needs credibility to maintain monetary stability and the exchange rate.

He also warned of the risk if monetary policy is overly directed towards supporting the government’s fiscal needs. Such a condition, according to him, could trigger market concerns about policy credibility and ultimately encourage capital outflows.