Indonesian Rupiah regains its footing despite MSCI risks - DBS

Bank Indonesia’s decision to hold its benchmark rate at 5.75%, alongside targeted measures to support the Indonesian Rupiah, has left USD/IDR relatively steady, according to DBS Group Research’s Philip Wee. The report examines BI’s emphasis on currency stabilisation and Jakarta’s efforts to address MSCI downgrade risks. It also considers whether USD/IDR could return to a 17500-18000 range if global Dollar strength subsides.

BI’s targeted FX measures steady Rupiah

"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. Find out more.)