Indonesian Rupiah weakens amid complicating BI policy outlook
USD/IDR depreciates after opening with a bullish gap, remaining in positive territory for the sixth straight day and trading around 17,780 during Asian hours on Thursday. Meanwhile, traders are bracing for Bank Indonesia’s (BI) policy meeting next week.
The Indonesian Rupiah experienced a weakening trend as traders anticipated Bank Indonesia's upcoming policy meeting. Policymakers had maintained the key rate at 5.75% for two consecutive months, despite a 100 basis point tightening since May. Inflation concerns due to higher oil prices and possible El Niño effects complicated the Bank Indonesia's policy outlook, as they sought to preserve an appropriate interest-rate differential while ensuring Rupiah stability and economic growth.
Commerzbank's analysts emphasized that Suahasil Nazara, the new Finance Minister, would likely prioritize fiscal prudence due to his extensive background in fiscal policymaking and budget management. The USD/IDR pair remained stable as the US Dollar strengthened following the Federal Reserve's interest rate hike and signaling potential further increases before year-end.
The Fed raised the federal funds rate by 25 basis points to a target range of 3.75%-4.00%, representing the first hike in three years. The probability of another Fed rate increase at the October meeting stood at approximately 49.8%, according to the CME FedWatch tool. Economists at NBC noted that the Fed's move reflected broad support for more restrictive monetary policy, signaling a shift toward a tighter monetary environment for an extended period, with no return to 3.5%-3.75% range until the end of 2029.
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