Indonesian Rupiah advances despite MSCI outflow risks as political uncertainty recedes

• Economic activity remains undisturbed following Vice President Gibran Rakabuming’s resignation, while reduced political uncertainty supports gains in the Indonesian Rupiah.
• A budget deficit of 1.47% of GDP was recorded in Indonesia over 10 months, as MSCI index exclusions increase the risk of foreign capital outflows.
• Stronger US inflation has bolstered expectations of a December Fed rate rise, curbing the scope for USD/IDR losses before Friday’s US PPI release.

After setting a record high of 18,285 the day before, USD/IDR has retreated to around 18,220 in Friday’s Asian trading. Supporting the Indonesian Rupiah (IDR), political uncertainty has eased following Indonesian Vice President Gibran Rakabuming’s resignation, while the government has offered assurances that economic activity continues without disruption.

A budget shortfall of 379.3 trillion rupiah ($20.81 billion), equivalent to 1.47% of GDP, was recorded in the first 10 months of 2026, Finance Minister Suahasil Nazara said on Friday. Revenue for January to October reached 2,618 trillion Rupiah, up 24% year-on-year, against total expenditure of 2,997.2 trillion Rupiah, an increase of nearly 16%. Those figures leave the full-year 2026 deficit on course to match the government’s unchanged forecast of 2.85% of GDP.

The risk of foreign capital leaving Indonesia nevertheless continues to grow. Following the removal of Barito Pacific and Bumi Resources in MSCI’s November review, its global index now has just seven Indonesian constituents, among them the country’s four major banks, adding to the pressures facing the Rupiah.

Persistent concerns over inflation and expectations of tighter monetary policy could, however, help the US Dollar (USD) recover, potentially restricting further declines in USD/IDR. The prospect of a Federal Reserve rate increase in December gained support from this week’s stronger-than-forecast US Consumer Price Index (CPI) figures. Fed Governor Christopher Waller added to those expectations by saying that a 50-basis-point rise should be considered if core inflation remains elevated.

According to the CME FedWatch tool, market pricing now implies a nearly 85.5% probability of a Fed rate increase at the central bank’s next meeting on December 8-9, with a 14.5% chance of a half-point move. For further clues to the policy outlook, 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 the core measure is expected to rise 5.0%.

Dollar retains support as Williams highlights US resilience and persistent inflation

A 7/10 FXS Speechtracker score, compared with a historical average of 6.1/10, placed Fed’s Williams’ moderately hawkish remarks above the established baseline in terms of policy firmness. His description of the US economy as “resilient” and “robust”, coupled with inflation that remains “stubbornly persistent” and “too elevated”, suggests the central bank continues to see a need to “act over time”. With “work” still required to achieve the appropriate monetary policy stance, the message underpins expectations of tighter conditions and a favourable environment for the Dollar. Williams also clarified that policy seeks to control inflation rather than reverse the overall price level, reinforcing the emphasis on stabilising inflation without causing a deep downturn.

Despite remaining firmly in hawkish territory, the FXS Fed Sentiment Index eased 0.08 points to 147.47, signalling a modest reduction in hawkish intensity. The reading is still well above the neutral level of 100. Williams’ comments therefore continue to favour a hawkish policy outlook, notwithstanding the slight moderation in the combined signal recorded by the FXS Fed Sentiment Index and the FXS Speechtracker.