USD/IDR: Recovery in investor sentiment to lower the pair below 14000 by end-2020 – ANZ

USD/IDR is back to the level last seen in late February, at the beginning of the pandemic, as currently trades at 14255. Once investor sentiment stabilizes, portfolio flows will likely make a sustained comeback and send the pair to 13950 by year-end, per ANZ Bank. 

Key quotes

“After coming a long way, we think further downside in USD/IDR will require a more sustained recovery in investor sentiment supporting foreign buying of Indonesian assets. After a record outflow of $7.8 billion in March, portfolio flows are more balanced. To-date in June flows are broadly flat. A sustained return of foreign buying is not yet in place.” 

“A sharp fall in the current account deficit, possibly to 1.5% of GDP in Q2 according to Bank Indonesia, will reduce the need for foreign funding. Meanwhile, to help revive the economy, the government has placed IDR30 trillion (or $2.1 billion) of funds to companies hit by the pandemic.” 

“On monetary policy, the central bank delivered a much expected 25bp cut in the policy rate to 4.25% at the June meeting, while signalling room to ease further. We now expect the central bank to reduce the policy rate by a further 25bps to a terminal rate of 4.00% in Q3 2020.”

“USD/IDR may range trade in the near term as global risk sentiment continues to fluctuate. Once investor sentiment stabilizes, portfolio flows will likely make a sustained comeback. We expect USD/IDR to end this year at 13950.”