Indonesian Rupiah: Softer inflation but currency risks linger – MUFG
MUFG strategists note Indonesia’s October Consumer Price Index (CPI) and core inflation both surprised on the downside, giving Bank Indonesia (BI) limited inflation-based justification to tighten policy.
Indonesian strategists from MUFG report that October's Consumer Price Index (CPI) and core inflation in Indonesia were lower than anticipated, leaving the Bank Indonesia (BI) without strong grounds for policy tightening. Despite this, the Indonesian Rupiah (IDR) remains under pressure, trading above 18,000 against the USD, and bond yields have increased, prompting cautiousness.
The October CPI showed a softer headline inflation rate at 3.23% year-over-year, down from 3.28% in September, while core inflation decelerated to 2.56% from 2.84%. Bank Indonesia's limited reason for rate hikes is attributed to the weakening currency, a significant constraint. The USD/IDR pair stayed above 18,000, while the 10-year Indonesian bond yield rose to 7.7%.
Investors will closely monitor Q3 GDP release on Thursday and FX reserves data on Friday before the Bank Indonesia's policy meeting on November 18th. MUFG maintains a cautious stance on the IDR, with a possible rate hike only if currency pressures persist.
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