Indonesian Rupiah: Do currency risks persist despite softer inflation? – MUFG

A weak Indonesian Rupiah (IDR) and rising bond yields are keeping MUFG strategists cautious, even as softer-than-expected October Consumer Price Index (CPI) and core inflation readings leave Bank Indonesia (BI) with little inflation-based reason to tighten policy. With USD/IDR remaining above 18,000, they warn that a BI rate hike cannot be ruled out if pressure on the currency intensifies.

How Does Rupiah Weakness Constrain Bank Indonesia?

"Indonesia's October CPI came in softer than expected, with headline inflation easing to 3.23%yoy from September's 3.28%yoy print and core inflation slowing to 2.56%yoy from 2.84%yoy, giving Bank Indonesia little inflation-driven reason to tighten, though IDR weakness remains a binding constraint."

"USD/IDR held above 18,000, while the 10-year Indonesian bond yield rose to 7.7%. Thursday's Q3 GDP release and Friday's FX reserves data will be key ahead of BI's 18 November policy meeting."

"We remain cautious on IDR, and a BI hike cannot be ruled out in the next policy meeting should currency pressures intensify."

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