Indonesian Rupiah: Finding footing despite MSCI risks - DBS

DBS Group Research’s Philip Wee notes that USD/IDR has been relatively stable after Bank Indonesia kept its benchmark rate at 5.75% while deploying targeted tools to support the Indonesian Rupiah. The report highlights BI’s focus on currency stabilisation, Jakarta’s response to MSCI downgrade risks, and the possibility of USD/IDR moving back into a 17500-18000 range if global Dollar strength eases.

Rupiah steadies as BI targets FX

"USD/IDR edged up 0.2% after Bank Indonesia left its benchmark rate unchanged at 5.75%. The IDR’s 0.16% depreciation was muted against the USD, reflecting mixed expectations for a hike or hold and BI’s alternative measures to defend the currency."

"Together with continued intervention in spot and forward FX markets, these measures underscored BI’s preference for targeted currency stabilisation over outright monetary tightening from MSCI-led market volatility."

"Hence, we need to distinguish between political rhetoric and policy efforts – BI’s actions to contain short-term currency volatility and Jakarta’s measures to restore longer-term investor confidence – in securing a sustained IDR recovery."

"Nevertheless, there are tentative signs that the IDR may be finding its footing. Since May, USD/IDR has increasingly mirrored movements in the DXY Index."

"Hence, we cannot rule out USD/IDR returning to a lower 17500-18000 range if the DXY declines to 99 from its overnight close of 101.7."

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