Easing political uncertainty lifts Indonesian Rupiah despite MSCI outflow risks

• The Indonesian Rupiah gains support from reduced political uncertainty after Vice President Gibran Rakabuming’s resignation, while economic activity remains undisturbed.
• Foreign capital outflow risks rise following MSCI index exclusions, as Indonesia reports a 10-month budget deficit of 1.47% of GDP.
• USD/IDR losses face a potential floor as stronger US inflation bolsters bets on a December Fed rate hike before Friday’s US PPI release.

Support for the Indonesian Rupiah (IDR) is weighing on USD/IDR as political uncertainty recedes following the resignation of Indonesian Vice President Gibran Rakabuming. Government assurances that economic activity remains uninterrupted are also underpinning the currency. After touching a record high of 18,285 a day earlier, USD/IDR has retreated to around 18,220 in Friday’s Asian trading session.

Indonesia’s fiscal figures provided additional context on Friday, when Finance Minister Suahasil Nazara put the budget deficit for the first 10 months of 2026 at 379.3 trillion rupiah ($20.81 billion), equivalent to 1.47% of GDP. Revenue for January through October increased 24% year-on-year to 2,618 trillion Rupiah, against a rise of nearly 16% in total expenditure to 2,997.2 trillion Rupiah. These figures leave the full-year 2026 deficit on course to match the government’s unchanged forecast of 2.85% of GDP.

Nevertheless, the risk of foreign capital outflows continues to build for the Rupiah. MSCI’s November review excluded Barito Pacific and Bumi Resources from its global index, reducing Indonesian representation to only seven constituents, among them the country’s four major banks.

Persistent inflation worries and expectations of tighter monetary policy could help the US Dollar (USD) recover, potentially restricting further declines in USD/IDR. This week’s stronger-than-anticipated US Consumer Price Index (CPI) release has strengthened expectations of a December Federal Reserve rate hike. Those expectations gained particular support from Fed Governor Christopher Waller’s observation that a 50-basis-point increase should be considered if core inflation remains elevated.

According to the CME FedWatch tool, markets now assign a nearly 85.5% probability to a Fed rate hike at the central bank’s next meeting on December 8-9, with a half-point increase carrying odds of 14.5%. For further guidance on the monetary policy trajectory, investors are looking to Friday’s US Producer Price Index (PPI) release. October’s headline PPI is forecast to increase 6.6% year-on-year, while the core measure is expected to rise 5.0%.

Can US resilience and persistent inflation keep the Dollar supported after Williams’ remarks?

A moderately hawkish tone marked Fed’s Williams’ remarks, reflected in an FXS Speechtracker reading of 7/10 against the historical average of 6.1/10. The score points to a firmer policy message than the established baseline. By describing the US economy as “resilient” and “robust”, and inflation as “stubbornly persistent” and “too elevated”, Williams indicated that the central bank continues to see a need to “act over time”, with “work” still required to achieve the appropriate monetary policy stance. That message reinforces expectations of tighter conditions and a favourable backdrop for the Dollar. His clarification that monetary policy aims to address inflation, rather than reverse the overall price level, further highlights the focus on stabilising inflation without inducing a deep downturn.

A decline of 0.08 points took the FXS Fed Sentiment Index to 147.47, signalling a modest easing in hawkish intensity rather than a shift away from its firmly hawkish stance. The reading remains well above the neutral 100 level. Williams’ comments therefore continue to underpin a hawkish policy bias, notwithstanding the slight moderation in the combined signal reflected by the FXS Fed Sentiment Index and the FXS Speechtracker.