Indonesian rupiah slumps 5% vs greenback

This worsens woes of the 6-month long depressing trade balance.

According to DBS, tupiah weakness has been more apparent over the past few weeks and the currency has weakened by around 5% against the greenback compared to a year ago.

The trade balance remains a key concern, having stayed in deficit territory for six out of the last eight months ending November. Unsurprisingly, this has widened
the current account deficit and raised external funding concerns.

"While we think that a recovery in external demand and a moderate rebound in commodity prices in the coming quarters should help buoy exports, these changes may not be sufficient to convince investors about the country’s external account stability.

As such, it is likely that the central bank (BI) will maintain a mild tightening stance over the medium term in order to restrain import growth and manage the trade
balance. That said, the policy rate is unlikely to be touched in the near term. Instead, BI is likely to tighten monetary policy through hikes in the FASBI deposit
rate," DBS noted.

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