Indonesian Rupiah: BI pause keeps tightening risk alive – Commerzbank

Commerzbank’s Moses Lim highlights that Bank Indonesia left the BI Rate at 5.75%, balancing inflation, growth and IDR stability after earlier hikes. BI has expanded hedging incentives and CNY clearing to support inflows and FX stability, while keeping SRBI yields from rising further. The bank maintains a 4.9-5.7% GDP forecast and expects another 25bp hike to 6% by year-end if IDR or inflation pressures intensify.

BI balances growth and rupiah stability

"Bank Indonesia (BI) kept the BI Rate at 5.75% for the second consecutive meeting, aligning with market expectations after 100bp of hikes in May and June. The decision reflected BI's need to balance rising inflation concerns, growth support, and IDR stability."

"BI stated the pause “remains consistent with efforts to strengthen the rupiah’s stability against the impact of heightened global volatility caused by the war in the Middle East”. Acting Governor Destry Damayanti noted that rising US Treasury yields could require a stronger future response."

"BI had more scope to stay on hold after USD/IDR stabilised around 17,830, down from the late-July high of 18,110. The improvement reflected better market confidence after President Prabowo’s budget speech, which outlined a 2027 deficit target of 2.4% of GDP and assured that Danantara Sumberdaya Indonesia (DSI) would only monitor prices rather than centralise commodity export activity."

"In FX, USD/IDR fell 0.1% to 17,833 yesterday and remains within its 17,650-18,200 range since early June. IDR remains vulnerable to oil prices and risk sentiment, although one potential equity-related headwind was delayed yesterday. FTSE announced it will defer any Indonesian equity index changes to December."

"FTSE may still cut the weighting of limited free-float stocks in September, but the decision delays risk of a downgrade to frontier market status for now. MSCI will review Indonesia’s market status in November."

"Looking ahead, IDR stability remains BI’s primary policy concern for now. Further tightening is likely if IDR comes under renewed pressure or inflation risks intensify. Therefore, we expect another 25bp hike to 6% by year-end."

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