Rupiah Falters, Post-BI Bid Evaporates

The rupiah has weakened anew amidst risk aversion, despite catching a bid yesterday as Bank Indonesia delivered a surprise 25bp hike to the 7-Day Reverse Repo Rate.

• Spot USD/IDR has added 25 figs to last trade at IDR14,863. A clearance of the 50-DMA (IDR14,896) would bring Aug 4 high of IDR14,939 into play. Bears look for a retreat towards the 100-DMA, which kicks in at IDR14,685.
• USD/IDR 1-month NDF last +22 figs at IDR14,883. Bulls see Aug 22/Aug 5 highs of IDR14,953/14,990 as their initial targets. Bears look for a slide through Aug 12 low of IDR14,654.
• The last dovish holdout in emerging Asia fell as Bank Indonesia raised its key policy rate on Tuesday despite signalling earlier this month that it saw no need to rush with hikes. Policymakers revised the inflation outlook higher, across headline and core price indices. The central bank now expects benchmark core inflation to accelerate beyond the target range this year as second-round effects take hold.
• Governor Warjiyo described the decision as a "preemptive and forward looking step to mitigate the risk of rising core inflation and inflation expectations due o the increase in non-subsidised fuel prices and volatile food inflation, as well as to strengthen the rupiah exchange rate stabilisation policy."
• The central bank will also undertake an Operation Twist-style measure to stabilise the rupiah. The Bank will sell more short-term gov't debt in the market, while buying longer dated bonds.
• Kompas cited FinMin Indrawati as noting that fuel subsidy would cost IDR198tn more without a hike in prices as consumption tops target.
• Palm oil futures extend gains, the most active contract trades +MYR63/MT on the day. The aggregate BBG Commodity Index has also edged higher.