USD/IDR Back Close To Mid Dec Highs, BI Likely On Hold Later

USD/IDR sits in the 15640/45 region, around 0.30% weaker in IDR terms so far in Wednesday trade. We aren't too far off mid Dec highs from last year near 15670. The 1 month NDF was last just above 15650, so slightly above NY closing levels from Tuesday.

• IDR weakness is line with broader USD gains, with US real yields bouncing impressively in Tuesday trade (10yr to 1.77%, +8bps). Equity risk off will also be weighing at the margins. Indonesia 5yr CDS sits at +75bps, up modestly from recent lows.
• The IDR is around mid range compared to the rest of Asia FX in terms of YTD performance, down 1.55%. Portfolio inflows into local debt have only been modest month to date, less than $200mn. Equity inflows have been more positive, at over $500mn, even as local equities are down modestly since the start of the year.
• The main focus later will be the BI decision. No change is expected, but with IDR breaking above 15600, FX stability is likely to remain a key focus point, with inflation under control.
• BI is not in any hurry to signal that it is ready to begin easing monetary policy and is highly unlikely to do so before the US. But given that the Fed is currently forecasting 75bp of rate reductions in 2024 and there’s significant uncertainty regarding the global economic outlook, the next move in Indonesian rates is likely to be down but after an extended pause (see our full preview here).