The Indonesian rupiah rebounded against the US dollar in April after three consecutive months of losses on the back of renewed dollar weakness. Nonetheless, economists at MUFG Bank believe primary income deficit is set to widen on seasonal corporate repatriation – which will hit the IDR.
The pre-pandemic trend is likely to resume
“We think the rebound is likely to be temporary as the rupiah faces downside risks from seasonal dividend repatriation to foreign shareholders. This trend is reflected in the primary income deficit which tends to peak in Q2 or Q3 every year, mirroring the uptick in USD/IDR on average in those quarters.”
“Bank Indonesia has turned slightly more pessimistic on its economic outlook with its GDP forecasts downgraded by 0.2 percentage points on both ends to 4.1-5.1%. But we reiterate our view that BI is likely done with further rate cuts this year due to the ‘limited’ room to do so and emphasis on ‘optimising’ macro-prudential measures.”
“Policy normalisation is not on the cards this year particularly with COVID-19 cases remaining elevated amid a slow vaccination rate.”
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