The Indonesian rupiah will largely remain a currency whose moves are based around inflation expectations in 2019. The latest numbers suggest that inflation is benign as it currently stands with oil prices decreasing and the rupiah increasing in value since hitting a 20 year low in October.
The Bank of Indonesia, the local central bank, has raised interest rates by 175bps this year and we think that another 50bps will come through in the early part of next year in a bid to maintain a spread with the US given the Federal Reserve also likely hikes in December of this year and March 2019.
The rupiah is therefore left in an interesting place, up until October of this year it had fallen by 12% against the dollar and was one of the worst performing currencies globally. Since then it has rallied by 5% as those interest rate hikes have made the currency more attractive.
We look for the IDR to continue to build into 2019 amid weakness in the US dollar and further rate hikes from the Bank of Indonesia through the first half of the year.
Market expectations of what will happen to the IDR versus the USD are below alongside the predictions of the 5 most accurate forecasters as measured by Bloomberg.
Source: Bloomberg as at 27/12/18
The full list of our 2019 currency outlooks can be found here.