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IDR: FX Intervention a Surprise But Expect More to Come. 

IDR
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  • News broke during yesterday’s trading session of intervention by Indonesia’s Central Bank (‘the BI’) in the FX markets following the decline in IDR spot to 15,431.
  • In 2024, IDR has averaged 15,784 with a high of 16,450 in June, and a low of 15,100.
  • Whilst the BI do not publish any currency target levels, it is very clear that their mandate is currency stability.
  • In order to maintain stability, the BI requires FX reserves (typically USD).
  • Over the last 5 years, the BI has done a good job in accumulating reserves with the 1-year average reserves up to US$142bn, an increase from the 5-year average of US137bn.   
  • This is a result of the strength of the domestic economy, the period of (relative) political stability and the international flows into the domestic bond market as a result.
  • The currency moves this week are potentially symptomatic of two things namely the swearing in of a new Indonesian government and the improving odds of Donald Trump in the US Presidential race (which at this stage is seen as USD/US yield supportive).
  • It is quite likely that with the confidence of the reserves behind them the BI will be more likely to intervene in the weeks ahead to smooth the volatility in their currency.
  • Whilst the US political cycle will impact the FX more, global investor portfolio flows will also be impacted by the domestic political cycle.
  • It is early days in Prabowo’s government and the appointment of Ms. Indrawati to retain her finance position has been greeted positively.
  • We will keep one eye on global investor portfolio flows for government bond as an indicator for how global investors are judging this new era in Indonesian politics. 
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  • News broke during yesterday’s trading session of intervention by Indonesia’s Central Bank (‘the BI’) in the FX markets following the decline in IDR spot to 15,431.
  • In 2024, IDR has averaged 15,784 with a high of 16,450 in June, and a low of 15,100.
  • Whilst the BI do not publish any currency target levels, it is very clear that their mandate is currency stability.
  • In order to maintain stability, the BI requires FX reserves (typically USD).
  • Over the last 5 years, the BI has done a good job in accumulating reserves with the 1-year average reserves up to US$142bn, an increase from the 5-year average of US137bn.   
  • This is a result of the strength of the domestic economy, the period of (relative) political stability and the international flows into the domestic bond market as a result.
  • The currency moves this week are potentially symptomatic of two things namely the swearing in of a new Indonesian government and the improving odds of Donald Trump in the US Presidential race (which at this stage is seen as USD/US yield supportive).
  • It is quite likely that with the confidence of the reserves behind them the BI will be more likely to intervene in the weeks ahead to smooth the volatility in their currency.
  • Whilst the US political cycle will impact the FX more, global investor portfolio flows will also be impacted by the domestic political cycle.
  • It is early days in Prabowo’s government and the appointment of Ms. Indrawati to retain her finance position has been greeted positively.
  • We will keep one eye on global investor portfolio flows for government bond as an indicator for how global investors are judging this new era in Indonesian politics.