USD/IDR to move downward in the coming quarters amid brighter rupiah's outlook – MUFG

USD/IDR progressively headed higher in June. Nevertheless, economists at MUFG Bank see some reasons to be positive about the Indonesian rupiah in the coming months.

Elevated commodity prices are likely supportive of IDR in the coming quarters

“We anticipate underlying core inflation to be close to the upper end of BI’s 2-4% inflation target by the end of the year. We see BI raising the benchmark rate when underlying inflation moves within a 3-4% YoY range in Q3 or Q4 this year.” 

“The trade balance outlook is positive despite a temporary setback in May. The palm oil export ban in May partially caused the trade balance to dip to USD2.9 bn from a record high of USD7.57 bn in April. We look for a rebound in the coming months after the ban has been lifted, from June onwards.” 

“We still see elevated commodity prices in the coming months, which will be supportive of the IDR in the next few quarters.”

“We move our USD/IDR forecast profile higher, but forecast USD/IDR to move lower from 14,700 in Q3 to 14,500 in Q1-23 and Q2-23.”