Currency Forecast - IDR: Outperformance In Total Return Terms - NOV 2017

BMI View: We have adopted a neutral view on the rupiah over the near-term given that the currency has strengthened against the dollar in spite of BI's surprise rate cut in August. A surging CNY and further improvements in the terms of trade will provide support. Over the longer-term, higher structural inflation and an expensive REER is likely to weigh on the IDR, but a superior growth outlook should allow the rupiah to continue to outperform in total returns terms.

Short-Term Outlook (three-to-six months)

The Indonesian rupiah broke multi-month resistance on September 8, and while we did not explicitly call for a break of the peg in our recent currency forecast, this is in line with us turning more bullish on the IDR and our expectations for the currency to outperform the USD in total return terms (see 'IDR: Stability To Hold, Outperformance In Total Return Terms', August 30). We maintain our forecast for the rupiah to end the year at IDR13,400/USD.

Terms Of Trade Improving With Commodity Price Recovery
Indonesia - Terms of Trade
Source: BMI, Bloomberg

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