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. Nevertheless, the Indonesian Rupiah (IDR) remains weak above USD/IDR 18,000 and bond yields have risen, leading them to stay cautious and warn that a BI rate hike cannot be ruled out if currency pressures intensify.

Bank Indonesia constrained by weak Rupiah

"Indonesia's October CPI came in softer than expected, with headline inflation easing to 3.23%yoy from September's 3.28%yoy print and core inflation slowing to 2.56%yoy from 2.84%yoy, giving Bank Indonesia little inflation-driven reason to tighten, though IDR weakness remains a binding constraint."

"USD/IDR held above 18,000, while the 10-year Indonesian bond yield rose to 7.7%. Thursday's Q3 GDP release and Friday's FX reserves data will be key ahead of BI's 18 November policy meeting."

"We remain cautious on IDR, and a BI hike cannot be ruled out in the next policy meeting should currency pressures intensify."

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