Indonesia's onshore foreign exchange and bond markets have shown signs of stabilization following a correction in global oil prices, according to DBS Group Research economist Radhika Rao. However, the scale of these gains has been described as modest, with the Indonesian rupiah (USD/IDR) breaking below the 18,000 level but encountering buyers at sub-17,850, resulting in the currency maintaining its status as the regional underperformer [1].
Foreign interest has returned to Indonesian rupiah-denominated bonds, with the foreign share in outstanding bonds reaching 12.7%. Foreign investors have turned net buyers both year-to-date and in June, though equity market flows remain tepid [1]. The equity markets experienced a temporary boost after MSCI decided to retain Indonesia at emerging market status, but volatility is expected to increase ahead of the November review [1].
Rao notes that for a more decisive rally in the IDR and for the 10-year yield to break below 7%, more constructive commentary from domestic authorities and a scaling back of US tightening expectations are required [1].
Overall, while Indonesia's FX and bond markets have stabilized, the IDR continues to lag behind regional peers, and the outlook remains cautious pending further supportive policy signals and global developments [1].
CONCLUSION
Indonesia's FX and bond markets have steadied after a correction in oil prices, but the rupiah remains an underperformer in the region. Foreign interest in bonds has improved, yet equity flows are still weak. Further gains depend on supportive domestic policy commentary and changes in US monetary policy expectations.