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At the time of writing, USD/IDR trades at 14,177, down -0.40% on a daily basis, having retreated from three-week highs of 14,207. Economists at Mizuho Bank believe the Indonesian rupiah is forecast to remain strong against the US dollar in January as a most-likely scenario. 

Key quotes

“The situation concerning the covid crisis remains pessimistic in Indonesia, which has recorded the worst mortality rates in Southeast Asia, while large-scale distancing protocols in Jakarta remain in place. It is likely that the pandemic will continue impacting the domestic economy of Indonesia. Due to this situation, imports have been recording negative year-on-year growth. On the other hand, the November exports turned out to be $2.6 B, recording remarkably positive year-on-year growth. While the trade surplus remains high in Indonesia, it is understandable that the Indonesia rupiah remains robust.”

“If the Indonesian rupiah remains strong, it is possible for the interest rate to be cut again, given the slowdown of the domestic market, along with the inflation rate, which remains below the lower end of the target range set out by the central bank of Indonesia, although the rate has been rallying slightly.”

“If the central bank of Indonesia is obliged to maintain the policy of monetary easing for a long period, there would be concerns over the direct purchase of government bonds by the central bank again. Another factor of concern is that, even though an increasing number of countries are starting vaccination against covid, it is unknown how effective that will be and how long it will take before things return to normal. Market participants should thus remain cautious about the possibility for the Indonesian rupiah, which is currently stable, to start weakening due to a deterioration of investor sentiment.”