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Analysts at MUFG Bank, see the Indonesian rupiah weakening versus the US dollar over the next quarter and starting to recover near year-end. They forecast USD/IDR at 15000 in Q2, 15200 in Q3 and at 14800 by Q1 2020. 

Key Quotes:

“The Indonesian rupiah extended its gains against the dollar in May, albeit by a much smaller magnitude of 1.7% versus its sharp 9.5% rebound in April. This came amid BI’s usage of unconventional policy tools such as QE, and its view that the rupiah remains undervalued. BI first admitted to using QE since January in its weekly report end-April.”

“BI Governor Warjiyo estimates total bond issuance by the Ministry of Finance between Q2-4 to be around IDR500 tn. With BI purchases capped at 25% of the amount per auction, maximum purchases during this period would be IDR125 tn. This is just 0.8% of GDP. The current account deficit narrowed to 1.4% of GDP in Q1. BI now expects it to be below 2% of GDP in 2020. But we think this would only dampen downside risks to the rupiah in the near term.”

“A reversal in capital flows would render the rupiah vulnerable, which may include waves of COVID-19 globally and a sharper decline in Indonesia’s GDP growth from the 2.4% q/q contraction in Q1. Economic activity will remain crimped as the pandemic has yet to reach a peak in Indonesia, particularly in Jakarta. Average daily cases in May were 1.8 times that in April.”