Rupiah Sees Little Positive Flow Through From BI Hike

USD/IDR spot is back above 16200 in the first part of Thursday trade, around 0.35% weaker in IDR terms. Lows in the pair, after yesterday's BI 25bps rate hike, came in at 16145. Recent highs rest at 16288. The 1 month NDF was last around 16230, slightly lower for the session.

• BI left its macro outlook unchanged but it now expects that the Fed won't hike before Q4 and that there will only be 25bp before year end rather than 75bp. BI is unlikely to ease before the Fed given rupiah weakness.
• Broader risk sentiment has not helped BI's cause to stabilize IDR sentiment post yesterday's surprise hike. Weaker global equities, amidst a higher core yield backdrop, is typically not favorable rupiah backdrop.
• US real yields (10yr basis) sits close to multi month highs, last near 2.24%. As we have highlighted this week, IDR tends to correlate better with US yield moves rather than local ones (at least from an intuitive standpoint, as higher Indonesian yields have been correlated with a weaker FX in recent months).
• 5yr CDS is a touch higher, while we continue to sell outflows from local bonds by offshore investors (-$345.6mn up to Tuesday this week). Equity outflows have been reasonably modest so far this week (-$64.2mn).
• The next focus point on the local data calendar will be next Thursday when the Apr PMI and CPI prints are due.