MUFG Bank analysts, see the Indonesian rupiah weakening against the US dollar in the next quarter and starting to recover towards the end of the year. They forecast USD / IDR at 15,000 in Q2, 15,200 in Q3 and 14,800 in Q1 2020.
“The Indonesian rupee extended its gains against the dollar in May, albeit on a much smaller scale of 1.7% against its sharp rebound of 9.5% in April. This happened amid BI’s use of unconventional policy tools such as QE, and its view that the rupiah remains undervalued. BI admitted to using QE for the first time since January in its weekly report at the end of April. “
BI Governor Warjiyo estimates that total bond issues by the Ministry of Finance between the second and fourth quarter are around IDR 500 tn. BI purchases being capped at 25% of the amount per auction, the maximum purchases during this period would be 125 IDR tn. This represents only 0.8% of GDP. The current account deficit narrowed to 1.4% of GDP in the first quarter. BI now expects it to be less than 2% of GDP in 2020. But we think that would only cushion the downside risks for the rupee in the short term.
“A reversal of capital flows would make the rupee vulnerable, which could include waves of COVID-19 around the world and a more marked drop in Indonesia’s GDP growth compared to the contraction of 2.4% t / t in the first quarter. Economic activity will remain folded because the pandemic has not yet reached a peak in Indonesia, in particular in Jakarta. The average number of daily cases in May was 1.8 times that of April. “