The Indonesian rupiah was the second worst performing Asia ex-Japan currency in 2020 as during 2020 IDR depreciated against the US dollar from 13,863.0 to 14,279.0.
According to economists at MUFG Bank, the current account deficit to be well-contained in 2021 while positive real yields will help support the rupiah.
Key quotes
“Losses were concentrated in Q1 in reaction to the COVID-19 shock, and in Q3 on fears that debt monetisation is not one-off. Indonesia has secured COVID-19 vaccines for two-thirds of its population and will begin mass vaccinations in January.”
“In nominal GDP terms, the economy may recover to pre-COVID-19 levels this year albeit at a gradual pace amid challenges in mass vaccination and a marginal 0.4% YoY increase in government spending.”
“We see scope for another 25bps of cut to the benchmark 7D RR in 2021, and debt monetisation is likely to continue. BI expects the current account deficit to remain relatively benign between 1.0-2.0% of GDP in 2021 from 2020’s deficit below 1.5% of GDP. This would be mainly on the assumption of higher imports as private consumption and infrastructure spending increase.”
“A well-contained current account deficit, real yields remaining higher amid benign inflation, and dollar weakness will help support the rupiah.”
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