Indonesian Rupiah: Policy synergy focus supports IDR – DBS

DBS Group Research economist Radhika Rao notes that Indonesia’s parliament has held fit-and-proper hearings for BI Governor nominee Destry Damayanti, who signalled continuity, robust policy tools and stronger coordination with fiscal authorities. Onshore markets have turned more constructive, with USDIDR easing off July highs and the bond curve steepening as foreign investors return to IDR debt.

Governor nominee underpins market confidence

"Indonesia’s parliament held the fit-and-proper hearings for the BI Governor nominee Destry Damayanti on Wednesday. In early remarks at the session, she emphasized that the central bank had a robust mix of monetary, macroprudential and payment system tools at its disposal. Importance of policy synergy and coordination with the government and related agencies were also highlighted."

"Onshore markets turned more constructive this month, amid easing concerns over policy uncertainty, stability in the currency and affirmative remarks on the fiscal outlook. The growth outlook is also supportive, besides a manageable inflation profile. Policy packages by BI in June-July introduced enhancements to hedging activity, providing swap incentives and broadening those linked to local currency transactions."

"This signalled a shift in the central bank’s focus from purely rate hikes to non-rate measures to support the rupiah. USD/IDR is off July highs to hover within 17700-17900, helped also by the broader USD pullback (IDR up +1.6% in Aug). The bond curve has retained a steepening bias with the 10Y yield back around 7% tracking global cues, while the short-to-belly papers continue to benefit from a lower frequency of SRBI auctions and pricing out of further policy tightening expectations."

"Foreign investors have turned positive on IDR debt, with nearly $1bn inflows in Aug yet far (ownership at ~13% of outstanding issuance), besides strong appetite by retail and onshore institutions. We expect the steepening bias to sustain as the incoming Governor is unlikely to act until FX or inflation pressures resurface."

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