Indonesian Rupiah: Tight liquidity and policy risks weigh versus US Dollar – MUFG

MUFG’s Lloyd Chan highlights that IDR is under particular pressure as rising US yields intersect with domestic policy uncertainty and higher energy prices. The Rupiah has weakened to fresh lows versus the US Dollar, driving persistent foreign equity outflows and sharp losses in Indonesian equities. Extremely tight USD/IDR liquidity points to further upside risks, though crowded positioning could trigger sharp reversals.

Rupiah pressured by tight USD funding

"For IDR in particular, vulnerabilities are compounded by domestic policy uncertainty and higher energy prices. The rupiah has continued to weaken, making fresh lows against the US dollar. This is already weighing on investor sentiment."

"Net foreign equity outflows persist, with the Jakarta Composite Index down more than 30% year-to-date."

"Notably, liquidity conditions in USD/IDR remain extremely tight, akin to the stress seen during the March 2020 COVID shock. This points to continued upside risks for USD/IDR."

"However, positioning appears increasingly crowded, leaving scope for a sharp reversal should geopolitical risks ease, particularly if there is any de-escalation in US–Iran tensions, alongside greater clarity on domestic policy direction."

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