Further IDR depreciation likely versus the USD

The IDR's relative stability has been partly due to official intervention and the lower direct export exposure to China compared with other commodity exporters. 

"Further IDR depreciation is seen versus the USD, although the central bank is trying to limit the currency's fall through a combination of FX intervention and macroprudential measures", says Barclays. 

These FX measure are likely to slow and not change the trend for USD/IDR. Indonesia's current account deficit remains the weakest in Asia at -2.4% GDP. The government's efforts to support growth through acceleration of infrastructure spending could potentially limit any correction in the C/A deficit lower. 

"Global commodity weakness is an additional concern for Indonesia's large resource sector. IDR's vulnerability to market risk aversion and foreign portfolio outflows is further exacerbated by poor onshore USD liquidity related to exporters withholding FX sales", added Barclays. 

BI is concerned that IDR depreciation would push up CPI inflation, which is already at relatively high levels despite weaker growth.