Rupiah Falls Despite High Interest Rates as US Fiscal Measures Bite

The Indonesian Rupiah (IDR) has been falling despite lingering high interest rates. This might seem counterintuitive, but Bank Indonesia's (BI) decision to keep the BI Rate unchanged as part of a broader stability push is expected to provide support for the currency.

Commerzbank's Moses Lim notes that BI framed its decision as consistent with efforts to strengthen the rupiah's stability against heightened global volatility. However, Acting Governor Destry Damayanti cautioned that rising US Treasury yields could require a stronger future response from BI.

The USD/IDR pair may depreciate due to the US Dollar struggling under pressure from newly announced fiscal measures in Washington. The US Treasury Department pledged to at least double its buybacks of longer-dated government debt to curb rising bond yields.