Indonesian Rupiah: Rate support erodes as outflows resume – MUFG

MUFG’s Lloyd Chan warns that the Indonesian Rupiah remains exposed as US yield increases erode Indonesia’s rate support. Bank Indonesia has shifted focus from further rate hikes to non-rate stabilisation tools, such as cheaper FX hedging, but renewed foreign portfolio outflows and prospects of weaker trade balances suggest underlying Rupiah pressure persists in the near term.

Non-rate tools face persistent pressure

"IDR and THB remain more exposed."

"Indonesia's rate support has been eroded by the rise in US yields, while Bank Indonesia has shifted its emphasis away from further rate hikes towards non-rate stabilisation measures, including cheaper FX hedging for portfolio investors."

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"Renewed foreign portfolio outflows in September and the prospect of weaker trade balances in August-September nevertheless suggest that underlying rupiah pressure has not disappeared."

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