Indonesia: Stabilising FX and bonds as oil eases – DBS

DBS Group Research economist Radhika Rao notes that Indonesia’s onshore FX and bond markets have stabilised following a correction in global Oil prices, though gains are modest. She highlights USD/IDR’s move below 18000, persistent underperformance versus regional peers, and foreign interest returning to IDR bonds. Rao argues more constructive official commentary and softer US tightening expectations are needed for a stronger IDR and lower 10-year yields.

IDR, bonds steady after oil correction

"Onshore FX and bond markets have stabilised on the back of a correction in global oil prices, although scale of gains has been measured."

"USD/IDR broke below 18000, although ran into buyers at sub-17850, which has led the currency to maintain its position as the regional underperformer."

"More constructive commentary from the domestic authorities/ regulators and scaling back of US tightening expectations are required to open the room for a rally in the IDR and for the 10Y yield to decisively break below 7%."

"Foreign interests have returned to IDR bonds (12.7% share in outstanding; turning net buyers YTD and in June), although flows remain tepid in equities."

"Equity markets received a temporary reprieve from the MSCI’s decision to retain Indonesia at emerging market status, although volatility is set to rise ahead of the November review."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)