USD/IDR: Rupiah gains to be more gradual from here – MUFG

During August the Indonesian rupiah appreciated against the US dollar from 14,460.0 to 14,265.0. However, as the Bank Indoneseia (BI) has confirmed that it will be buying more government bonds from the primary market in 2022, the IDR is set to slow down its strengthening.

BI’s holding of Indonesian government bonds to rise as debt monetisation is extended to 2022

“The seven-day moving average of new COVID-19 cases dropped to 12,887 at end-August versus 40,262 at end-July. However, with only 12.9% of the population fully vaccinated as of 29th August, re-opening the economy raises the risk of another wave of the pandemic that could lead to stricter measures again.”

“Lingering Delta variant concerns, on top of the extension of BI’s debt monetisation for the third consecutive year to 2022 are likely to continue to dampen upward pressure on the rupiah in the coming months.”

“Some positive factors for the rupiah ahead include US dollar weakness in Q4 after the Fed makes its highly anticipated QE tapering announcement and a slightly narrower current account deficit in Q4. This is as corporate repatriations of dividends overseas likely peaked in Q2.”