Indonesian Rupiah strengthens on prospect of BI intervention

• Rising bond yields and the risk of foreign capital outflows have not ruled out market intervention by Bank Indonesia to support the Indonesian Rupiah.
• Despite elevated inflation, the Fed halted rate increases in October, with two dissenting officials preferring an immediate rise in borrowing costs.
• With inflation and price pressures still elevated, as the Fed acknowledged, further rate increases were put on hold while it assessed incoming economic data.

At around 18,127 during Thursday’s Asian trading hours, USD/IDR extends its retreat from the nearly 5-month high of 18,223 recorded on 27 October. Proactive measures by Bank Indonesia (BI) are supporting the Indonesian Rupiah (IDR), whose strengthening is pushing the pair lower.

Intervention in Non-Deliverable Forward (NDF), Domestic Non-Deliverable Forward (DNDF) and spot markets remains part of BI’s commitment to stabilising the domestic currency, which it recently reaffirmed. Targeted secondary-market purchases of government bonds also form part of that commitment.

Indonesia’s 10-year government bond yield climbed to 7.707% on Thursday, its highest in six years and well above the 6.9% benchmark in the 2026 budget. The move reflects investors’ mounting concerns about inflation and national fiscal risks, underscoring the broader fiscal and market pressures that persist despite the central bank’s intervention.

Regulatory uncertainty is also prompting sustained selling by foreign investors, adding to these difficulties. Unresolved questions about Indonesia’s MSCI market status have further weakened sentiment: the possibility of a future downgrade to standalone status continues to fuel concerns over prolonged capital outflows.

With interest rates left at 3.75%–4.00%, the Federal Reserve (Fed) delivered the widely anticipated hold but offered little guidance on its next policy step, prompting the US Dollar (USD) to surrender its recent gains. The Fed said economic activity was still expanding, citing resilient domestic spending, solid capital investment and strong productivity growth in its official statement. On its labour market mandate, the central bank noted that employment gains had matched growth in the workforce, while the unemployment rate had changed little.

Although it recognised that inflationary pressures remained elevated, the Fed opted to suspend further rate increases while collecting more data and evaluating the appropriate future monetary policy stance. Two officials opposed the decision: Fed Governor Lisa Cook and Cleveland Fed President Beth Hammack both voted for an immediate rate rise.

Stressing the continued strength of the underlying economy, Fed Chair Kevin Warsh reiterated the Federal Open Market Committee's resolve to secure price stability and meet its 2% inflation target. He also set out the central bank's forthcoming timetable: eight meetings are planned for next year, including one without a formal vote, while he expects six policy-setting meetings in 2028.