USD/IDR: Rupiah is vulnerable to near-term fluctuations in the trade balance – MUFG

USD/IDR peaked above 14,700 on 19 May but pulled back after broad dollar weakness emerged. The Indonesian rupiah was adversely affected by export ban in May and is likely to remain impacted by trade balance changes in the months ahead, according to strategists at MUFG Bank.

BI will only hike by the 7D RR from Q3, with a total of 100bps for the year

“We see some rebound in the trade balance from June, after a high of USD7.56 bn in April and an expected dip in May. Meanwhile, BI has utilised the RRR instead of the 7D RR to tighten monetary policy.” 

“BI may have found some policy scope to maintain its policy stance after the government’s announcement to increase fuel subsidies and lift the ban on palm oil exports. These will likely respectively cap inflationary pressures and provide some stability to the IDR.”

“We now forecast higher USD/IDR at 14,600 for Q4-2022 and Q1-2023.” 

“We now believe that BI will only hike by the 7D RR from Q3, with a total of 100bps for the year.”