Rupiah Finds Support Despite Lingering Economic Headwinds

The Indonesian rupiah firmed, hovering around IDR 18,130 per U.S. dollar on Tuesday after briefly touching IDR 18,200 in the prior session. Sentiment improved amid a stronger-than-expected September trade surplus, though imports grew faster than exports. Meanwhile, headline inflation eased slightly in October, remaining within Bank Indonesia's target range despite accelerating food prices amid El Niño-related supply disruptions. Indonesia's manufacturing sector also improved last month, with output, new orders, and export sales posting robust growth. However, overall sentiment remained cautious amid fiscal pressures from higher oil prices and exposure to volatile export earnings and shifting external demand. BI has reiterated its commitment to enhancing policy coordination with the government while maintaining a policy mix to support the rupiah. Globally, the dollar index steadied as traders assessed geopolitical risks and political uncertainty while awaiting U.S. labor-market data.

The Indonesian rupiah traded near IDR 18,160 per U.S. dollar on the first trading day of November, struggling to break below the 18,000 mark for a second straight week amid broad dollar strength ahead of U.S. jobs data and the midterm elections. Locally, October food prices accelerated further, even as headline inflation eased slightly but remained near a three-month high. Meanwhile, imports continued to outpace exports despite a stronger-than-expected September trade surplus. To support the rupiah and attract foreign capital, Bank Indonesia has maintained a policy mix involving spot, DNDF, and NDF interventions, alongside secondary-market bond purchases. Governor Destry Damayanti recently said the current benchmark rate remains adequate to anchor inflation expectations, adding that further rate adjustments would depend on incoming data. Following cumulative hikes of 100bps in May and June, BI faces the challenge of balancing rupiah stability, inflation control, and economic growth.

The Indonesian rupiah hovered near IDR 18,170 per U.S. dollar on Friday, remaining under pressure despite further easing in the dollar index after the U.S. Fed held interest rates steady earlier this week. Locally, Bank Indonesia Governor Destry Damayanti reaffirmed the central bank's focus on rupiah stability, saying the current benchmark rate remains sufficient to anchor inflation expectations. She added that any potential rate increase would depend on incoming data, following cumulative hikes of 100bps in May and June. Meantime, traders remained cautious ahead of next week's September trade and October inflation data. September inflation accelerated to a three-month high amid El Niño-related food price pressures. Elevated import and energy costs also heightened fiscal concerns amid Middle East tensions, keeping 10-year government bond yields near a 6-1/2-year high. The rupiah is set for the third straight weekly loss of around 1.1% and the second monthly fall of approximately 1.6%.