DBS Group Research economist Radhika Rao notes that Indonesia’s onshore FX and bond markets have stabilised following a correction in global Oil prices, though gains are modest.
She highlights USD/IDR’s move below 18000, persistent underperformance versus regional peers, and foreign interest returning to IDR bonds
Rao argues more constructive official commentary and softer US tightening expectations are needed for a stronger IDR and lower 10-year yields. IDR, bonds steady after oil correction “Onshore FX and bond markets have stabilised on the back of a correction in global oil prices, although scale of gains has been measured.” “USD/IDR broke below 18000, although ran into buyers at sub-17850, which has led the currency to maintain its position as the regional underperformer.” “More constructive commentary from the domestic authorities/ regulators and scaling back of US tightening expectations are required to open the room for a rally in the IDR and for the 10Y yield to decisively break below 7%.” “Foreign interests have returned to IDR bonds (12.7% share in outstanding; turning net buyers YTD and in June), although flows remain tepid in equities.” “Equity markets received a temporary reprieve from the MSCI’s decision to retain Indonesia at emerging market status, although volatility is set to rise ahead of the November review.” Author