USD/IDR: Rupiah remains vulnerable to portfolio outflows – MUFG

During October the Indonesian rupiah appreciated against the US dollar from 14,840.00 to 14,620.00. COVID-19 cases in Indonesia continue to climb while IDR is vulnerable to portfolio outflows, economists at MUFG Bank reports.

Key quotes

“The rupiah’s gains were accentuated during the first week of October following parliament’s approval of the Omnibus Law aimed at creating jobs and attracting investments in the long term. Domestic non-deliverable forward auctions helped keep the rupiah stable thereafter despite upward pressure stemming from a weaker dollar and resurgence of net inflows into Indonesian government bonds to a one year high.”

“A weaker dollar profile post US presidential elections driven by the expected expansion of quantitative easing by the Fed would help dampen downside risks to the rupiah. The rupiah remains susceptible to potential portfolio outflows and sluggish FDIs in view of a protracted economic recovery amid the COVID-19 pandemic.”

“The total number of COVID-19 cases continued to climb in October, albeit by a slower pace, resulting in further extensions to the large-scale social distancing measures in Jakarta to 9th November. That the manufacturing PMI contracted to 47.2 in September from August’s 50.8 is an indication of the negative impact from the re-imposition of restrictions. This raises the risk of the economy going back to pre-pandemic levels in nominal GDP terms in 2022 at the earliest rather than 2021.”