USD/IDR: Valuations support rupiah stability – MUFG

MUFG’s Senior Currency Analyst Lloyd Chan argues that while geopolitical risks stay elevated, valuation metrics such as REER now show meaningful Rupiah undervaluation versus the US Dollar. The bank’s base case is for near-term Rupiah stabilisation, with USD/IDR seen at 17,000 by end-Q2 and gradually improving Rupiah performance as policy support and flows strengthen.

MUFG sees scope for gradual recovery

"Geopolitical risks remain elevated, but valuations are turning more compelling, with REER pointing to meaningful rupiah undervaluation versus the US dollar."

"Active policy intervention has helped suppress FX volatility and slow the pace of USDIDR gains, while Indonesia’s sovereign CDS spreads have narrowed."

"USDIDR has also moved into overbought territory, reducing the risk-reward of chasing USD upside at current levels."

"Our base case is for near‑term rupiah stabilisation rather than a disorderly depreciation."

"We maintain our end‑Q2 USDIDR forecast at 17,000 and expect a gradual improvement in rupiah performance in subsequent quarters as stabilisation forces build."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)