Indonesian Rupiah: Oil and US inflation pose risks – MUFG

MUFG’s Lloyd Chan warns that upcoming US inflation data could test the recent Rupiah recovery, as firmer US inflation may reinforce elevated US yields and challenge USD/IDR’s break below 17,700. He notes limits to domestic buffers, rising foreign ownership of SRBI, and that higher Oil prices could revive concerns over Indonesia’s fiscal risks and subsidy costs.

Rupiah recovery faces external tests

"In Indonesia, US inflation data this week could test the recent rupiah recovery."

"Firmer US inflation could reinforce elevated US yields and challenge USD/IDR's recent break below 17,700. While domestic buffers remain supportive, there are limits."

"Foreign ownership of outstanding SRBI has already reached around 27%, close to previous highs seen in late 2024. More importantly, Indonesia's commodity offsets are proving insufficient to fully counter the deterioration in the oil and gas trade balance."

"Our calculations suggest Brent prices above US$82/bbl begin to erode the cushioning effect from coal, palm oil and base-metal exports."

"If oil prices move above US$100/bbl and remain there for an extended period, renewed concerns over fiscal risks and subsidy costs could re-emerge."