Indonesian Rupiah gains ground due to possible BI intervention

• Bank Indonesia could back the Indonesian Rupiah via market interventions despite rising bond yields and foreign capital outflow risks.
• The Fed paused rate hikes in October despite high inflation, though two officials dissented, favoring an immediate interest rate increase.
• The Fed paused rate hikes to assess economic data, despite acknowledging that inflation and price pressures remain elevated.

USD/IDR continues to depreciate after pulling back from a nearly 5-month high of 18,223, reached on October 27, trading around 18,127 during Asian hours on Thursday. The pair is losing ground as the Indonesian Rupiah (IDR) gains strength, bolstered by proactive support measures from Bank Indonesia (BI).

The BI recently reiterated its commitment to stabilizing the local currency through interventions in Non-Deliverable Forward (NDF), Domestic Non-Deliverable Forward (DNDF), and spot markets, as well as via targeted purchases of government bonds in the secondary market.

Despite these central bank interventions, broader fiscal and market pressures remain visible. Indonesia’s 10-year government bond yield reached 7.707% on Thursday, marking its highest level in six years and significantly outpacing the 2026 budget benchmark of 6.9%, as investors weigh growing concerns over inflation and national fiscal risks.

Compounding these challenges is persistent selling by foreign investors driven by regulatory uncertainties. Market sentiment has been further dampened by lingering doubts surrounding Indonesia’s MSCI market status, where a potential future downgrade to standalone status continues to spark fears of sustained capital outflows.

The US Dollar (USD) lost recent gains after the Federal Reserve (Fed) kept interest rates unchanged as widely expected, while providing limited clarity on its next policy move. The Fed held rates steady at 3.75%–4.00% and noted that economic activity continues to expand. In its official statement, the central bank highlighted resilient domestic spending, robust capital investment, and strong productivity growth. Regarding its labor market mandate, the Fed observed that job gains have kept pace with workforce growth while the unemployment rate has shown little change.

On inflation, the Fed acknowledged that price pressures remain elevated, but it chose to pause further rate hikes to gather additional data and assess the appropriate monetary policy stance going forward. The decision was not unanimous: Fed Governor Lisa Cook and Cleveland Fed President Beth Hammack dissented, voting instead in favor of an immediate rate increase.

Fed Chair Kevin Warsh reaffirmed the Federal Open Market Committee's commitment to delivering price stability and achieving its 2% inflation target, emphasizing that the underlying economy remains strong. He also outlined the central bank's upcoming schedule, noting that the Fed will hold eight meetings next year—including one without a formal vote—and that he anticipates six policy-setting meetings in 2028.