In May, the Indonesian Rupiah weakened against the US Dollar from 14,671 to 14,988. Economists at MUFG Bank analyze USD/IDR outlook.
Supportive current account fundamentals for the IDR
US Dollar strength moved USD/IDR higher, even as we do not anticipate excessive weakness in the coming months.
Fundamentals are stable. GDP growth reached 5.03% YoY in Q1, similar to the 5.01% result in Q4 2022. Inflation retreated further and we anticipate that inflation will head lower towards a 2-3% range in the coming months.
BI Governor Perry Warjiyo mentioned that the central bank will continue with its currency stabilization measures, including on its Operation Twist interventions in the bond market. This is targeted to manage imported inflation and global financial volatility. BI maintained its view that inflation will return to the 2-4% target range by Q3 2023. Operation Twist will continue. The FX term deposit facility with BI may continue to support IDR stability.
We forecast USD/IDR to fall to 14,400 in Q1 2024.
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