Indonesian Rupiah: Policy synergy focus supports IDR – DBS

Indonesian Rupiah (IDR) has been the focus of policy synergy efforts, according to DBS Group Research economist Radhika Rao. BI Governor nominee Destry Damayanti underwent fit-and-proper hearings by Indonesia's parliament, signaling continuity and highlighting the central bank's robust policy tools. These tools include monetary, macroprudential, and payment system measures.

The government and related agencies have also been emphasized as crucial partners in policy coordination. Onshore markets have turned more constructive due to easing concerns about policy uncertainty, currency stability, and positive fiscal outlook remarks. The growth outlook is supportive, alongside a manageable inflation profile.

The central bank has shifted focus from rate hikes to non-rate measures, such as enhancing hedging activities with swap incentives and expanding those tied to local currency transactions. This shift aims to support the rupiah more effectively. USD/IDR has eased off July highs, hovering between 17700-17900, aided by a broader USD pullback (+1.6% in August).

The bond curve remains steepening, with a 10-year yield around 7%, tracking global cues. Short-to-belly papers continue benefiting from lower SRBI auction frequencies and reduced expectations of further tightening. Foreign investors have shown positive sentiment toward IDR debt, with nearly $1 billion inflows in August, representing about 13% of outstanding issuance.

Additionally, retail and onshore institutions have demonstrated strong appetite for IDR debt. The central bank is unlikely to act until FX or inflation pressures resurface.