Indonesian Rupiah lifted by easing political uncertainty despite MSCI outflow risks

• Reduced political uncertainty after Vice President Gibran Rakabuming’s resignation lifts the Indonesian Rupiah, while economic activity continues without disruption.
• 1.47% of GDP: Indonesia’s 10-month budget deficit comes as MSCI index deletions raise the risk of foreign capital outflows.
• Ahead of Friday’s US PPI release, stronger US inflation bolsters bets on a December Fed rate increase and curbs USD/IDR downside.

18,220 is the approximate USD/IDR level during Friday’s Asian session. The pair has retreated from the previous day’s record high of 18,285. Supporting the Indonesian Rupiah (IDR) is a reduction in political uncertainty after Indonesian Vice President Gibran Rakabuming resigned, together with government assurances that economic activity continues uninterrupted.

Indonesia’s budget shortfall totalled 379.3 trillion rupiah ($20.81 billion), equivalent to 1.47% of GDP, in the first 10 months of 2026, Finance Minister Suahasil Nazara said on Friday. Revenue for January through October reached 2,618 trillion rupiah, up 24% year-on-year. Total expenditure increased nearly 16% to 2,997.2 trillion rupiah. These figures leave the full-year 2026 deficit on course to meet the government’s unchanged forecast of 2.85% of GDP.

Rising risks of foreign capital outflows nevertheless continue to challenge the Rupiah. MSCI removed Barito Pacific and Bumi Resources from its global index in the November review. Only seven Indonesian constituents now remain, 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 USD/IDR declines. This week’s above-forecast US Consumer Price Index (CPI) release strengthened expectations of a Federal Reserve rate increase in December. Those expectations gained particular support after Fed Governor Christopher Waller said 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 increase at its next meeting on December 8-9. The probability of a half-point increase stands at 14.5%. For further guidance on the central bank’s rate trajectory, investors are looking to Friday’s US Producer Price Index (PPI) release. October headline PPI is forecast to increase 6.6% year-on-year, while core PPI is expected to rise 5.0%.

7/10 FXS Speechtracker score: Williams’ US growth and inflation message supports Dollar

A 7/10 FXS Speechtracker reading places Fed official Williams’ moderately hawkish remarks above the historical average of 6.1/10, indicating a firmer policy tone than the established baseline. His descriptions of the US economy as “resilient” and “robust”, and inflation as “stubbornly persistent” and “too elevated”, suggest the central bank still believes it needs to “act over time”. With “work” still required to achieve the appropriate monetary policy stance, the message supports expectations of tighter conditions and a favourable backdrop for the Dollar. Williams also clarified that monetary policy aims to address inflation, not reverse the overall price level. That distinction reinforces the focus on stabilising inflation without triggering a deep downturn.

Despite falling 0.08 points to 147.47, the FXS Fed Sentiment Index remains firmly hawkish. The decline signals a modest easing in hawkish intensity, but the reading is still well above the neutral 100 level. Williams’ comments therefore continue to underpin a hawkish policy bias, notwithstanding the marginal moderation in the aggregate signal registered by the FXS Fed Sentiment Index and the FXS Speechtracker.