Indonesian Rupiah: Currency risks persist despite easing inflation – MUFG

Indonesia’s October Consumer Price Index (CPI) and core inflation readings were both below expectations, leaving Bank Indonesia (BI) with little inflation-based justification for tighter policy, according to MUFG strategists. Yet with USD/IDR still above 18,000 amid Indonesian Rupiah (IDR) weakness and bond yields moving higher, the strategists remain cautious. They caution that a BI rate rise cannot be ruled out should pressure on the currency intensify.

Rupiah Weakness Limits Bank Indonesia’s Room for Manoeuvre

"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. Find out more.)