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.
Indonesian Rupiah (IDR) stability remains a key concern for the Bank Indonesia (BI) after the bank decided to leave the BI Rate unchanged at 5.75% during its latest meeting. This decision came after the bank had increased rates by 100 basis points in May and June, in response to rising global volatility and inflation concerns. BI Governor Destry Damayanti stated that a stronger US Treasury yield could necessitate a more robust future response from the central bank.
The bank expanded hedging incentives and CNY clearing operations to support inflows and maintain forex stability, while preventing further increases in Short-Term Rupiah Bond Index (SRBI) yields. The bank's outlook for GDP growth is forecasted to be between 4.9-5.7% for the current fiscal year, with a potential 25 basis points hike in the central bank rate by the end of the year if inflationary pressures persist or the rupiah faces renewed stress.
The stabilization of USD/IDR around 17,830, following its late-July peak of 18,110, reflects a strengthened market position following President Prabowo's budget speech, which set a 2027 deficit target of 2.4% of GDP and assured that commodity export monitoring would remain decentralized. While the IDR remains vulnerable to oil prices and risk sentiment, there are potential equity-related headwinds, as the FTSE announced a postponement of Indonesian equity index changes to December.
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