USD/IDR has been relatively range-bound in Q1, hovering mostly around 14,250 to 14,400. In the view of economists at MUFG Bank, the Indonesian rupiah is vulnerable to disorderly financial conditions, although it holds some resilience to higher commodity price.

USD/IDR is likely to be anchored by BI’s goal to maintain financial stability

“The current account returned a surplus of 0.4% of GDP in Q4-2021 and is likely to remain in surplus in the near-term. We think that Indonesia may see a current account surplus (instead of a deficit) this year, if its major commodity export prices rise further. At the same time, the economy is likely to benefit from reduced restrictions for travel into Indonesia, boosting the depressed tourism sector.” 

“With inflation likely to be around BI’s 2-4% target of 2022, BI is in no hurry to hike policy rates. We anticipate rate hikes in H2-2022 when inflation is higher then. USD/IDR is likely to be anchored by BI’s goal to maintain financial stability.”

“There is slight risk of IDR weaknesses during periods of market volatility and non-commodity market-related risk aversion. Hence, we anticipate USD/IDR to only move slightly higher in the coming quarters, with some chance of lower numbers instead of our end-2021 forecast of 14,600.”