USD/IDR to trade around 14,000 near-term, BI pressured to ease – TDS

The sharp growth slowdown and the recent Indonesian rupee rally put pressure on the Bank Indonesia (BI) to ease. Economists at TD Securities expect a rate cut of 25 bp to 4.25% which should not move USD/IDR as the pair is pivoting around the 14,000 level. 

Key quotes

“We expect BI to cut its 7-day reverse repo by 25bp to 4.25% on Thursday 18 June.”

“Until recently BI was encouraging IDR appreciation, but officials have recently expressed concerns, suggesting that there may be growing resistance to further appreciation. Officials also want to avoid sharp IDR declines too, as more recent intervention has shown. We think the rally in IDR and concerns about its impact on trade (exports fell 29% YoY in May) will help to fuel a rate cut. The growth outlook also cries out for further easing, sooner rather than later.”

 “A 25bp cut is unlikely to do much to move IDR. The currency is reacting more to risk gyrations at present and as long as risk assets find support, so will IDR. That said, the growing official resistance to gains and reduced exports competiveness, suggest that further appreciation will be limited. Technicals (RSI) also suggest that USD/IDR is oversold. We expect USD/IDR to pivot around the 14,000 level over the near-term.”