USD/IDR edged up 0.2% after Bank Indonesia left its benchmark rate unchanged at 5.75%. The IDR’s 0.16% depreciation was muted against the USD, reflecting mixed expectations for a hike or hold and BI’s alternative measures to defend the currency. While keeping the lending rate unchanged at 6.50%, BI raised its deposit facility rate by 25 bps to 5%, improving returns on IDR liquidity. To support domestic credit growth, the central bank announced a phased reduction in banks’ reserve requirements from 9% to 8% in November and 7% in December. It also enhanced incentives for domestic non-deliverable forward (DNDF) hedging to lower currency hedging costs and encourage foreign inflows. Together with continued intervention in spot and forward FX markets, these measures underscored BI’s preference for targeted currency stabilisation over outright monetary tightening from MSCI-led market volatility.
Meanwhile, President Prabowo Subianto’s defiant response to MSCI’s downgrade threat should be viewed as reassuring domestic audiences. Jakarta is still working to address investor concerns about Indonesia’s equity market governance and the risk of an MSCI downgrade from emerging markets to standalone status by June 2027. Hence, we need to distinguish between political rhetoric and policy efforts – BI’s actions to contain short-term currency volatility and Jakarta’s measures to restore longer-term investor confidence – in securing a sustained IDR recovery.
Nevertheless, there are tentative signs that the IDR may be finding its footing. Since May, USD/IDR has increasingly mirrored movements in the DXY Index. While this alignment does not eliminate the risks associated with MSCI’s review, it suggests that the IDR may be moving away from persistent idiosyncratic domestic-led weakness towards greater normalisation with global USD trends. Hence, we cannot rule out USD/IDR returning to a lower 17500-18000 range if the DXY declines to 99 from its overnight close of 101.7.
Quote of the Day
“The best work is not what is most difficult for you; it is what you do best.”
Jean-Paul Sartre
Today in history
On October 22, 1964, French existentialist philosopher and author Jean-Paul Sartre became the first person to voluntarily decline the Nobel Prize in Literature. He stated that accepting it would compromise his intellectual independence and turn him into an "institution".
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