Is Bank Indonesia’s independence at risk?

Concerns about the independence of Bank Indonesia have grown following the announcement of a fresh “burden-sharing” agreement with the government and, most recently, the removal of respected finance minister Sri Mulyani from her post. The experience from other EMs shows that an erosion of central bank independence typically leads to higher inflation and inflation expectations. A prolonged period of high real interest rates would, eventually, be needed to get inflation back down.