Indonesian Rupiah falls as fiscal concerns and BI trade-offs weigh

• Higher oil import costs fuel fiscal concerns, weighing on the Indonesian Rupiah as BI faces growth trade-offs.
• Following MSCI’s warning of a possible downgrade to standalone market status, Indonesia steps up measures against stock manipulation.
• Further US Dollar upside faces constraints from expectations of a Fed rate pause and weaker immediate geopolitical demand for safe havens.

USD/IDR trades near 18,150 in Monday’s Asian session. The pair is advancing for a fourth consecutive day as elevated oil prices sustain fiscal concerns for Indonesia, a net oil importer, and weigh on the Indonesian Rupiah (IDR). Worries have also intensified that Bank Indonesia (BI) may have to make a difficult choice between supporting the currency and sustaining near-term growth.

Following MSCI’s warning that opaque trading could lead to a market downgrade, Indonesia unveiled further measures against stock market manipulation on Monday. These include appointing independent parties to a committee that identifies stocks with concentrated ownership structures. Earlier this month, MSCI said Indonesia’s stock exchange could be downgraded to "standalone" market status because efforts to curb coordinated stock trading practices remained insufficient.

Lower reserve requirements to boost Indonesia’s liquidity

A phased cut in banks’ reserve requirement ratios accompanied Bank Indonesia’s latest policy decision, according to MUFG analysts, who highlight the move’s aim of increasing domestic liquidity. They explain that “for conventional banks, the reserve requirement ratio will fall from 9% to 8% on 1 November and further to 7% on 1 December,” while “for sharia banks, the reserve requirement ratio will decline from 7.5% to 6.5% and subsequently to 5.5%.” In MUFG’s assessment, the measures selectively ease funding conditions, complementing BI’s broader policy mix without compromising its currency-support objectives.

Expectations for the Federal Reserve (Fed) to leave interest rates unchanged in October, before potentially raising them again in December, may weigh on the US Dollar (USD) and limit USD/IDR’s advance. The CME FedWatch Tool currently puts the market-implied probability of a pause at the October 27–28 policy meeting at 90.6%, with a 79.7% chance of a December increase.

Reduced safe-haven demand is also putting pressure on the Greenback after US President Donald Trump ruled out immediate military action against Iran. According to Al Jazeera, he stated, “there will not be a strike today,” although markets remain concerned that strikes could resume after this week’s Israeli elections and next week’s US midterm elections. Reports indicate that Iran is ready to retaliate by targeting Israel and the UAE.

Safe-haven demand splits across currencies as risks diverge

The source of each shock is increasingly shaping investors’ choice of haven, according to OCBC strategists. Their observation that “safe-haven demand is intensifying, but the beneficiaries differ by risk,” captures the theme of “different shocks, different havens.” Concerns over AI-related growth are directing funds towards the Japanese Yen, while Middle East tensions support the Canadian Dollar and NOK. French fiscal pressures, meanwhile, are supporting the Swiss Franc.