MUFG’s Senior Currency Analyst Lloyd Chan has highlighted that despite ongoing elevated geopolitical risks, valuation metrics such as the Real Effective Exchange Rate (REER) indicate a meaningful undervaluation of the Indonesian rupiah against the US dollar [1]. The bank’s base case scenario projects near-term rupiah stabilisation, with a forecast for USD/IDR at 17,000 by the end of Q2 [1]. MUFG expects a gradual improvement in rupiah performance in subsequent quarters, supported by stabilisation forces including policy support and strengthening capital flows [1].
Chan notes that USD/IDR has entered overbought territory, which reduces the risk-reward of pursuing further USD upside at current levels [1]. Active policy intervention by Indonesian authorities has contributed to suppressing foreign exchange volatility and slowing the pace of USD/IDR gains [1]. Additionally, Indonesia’s sovereign credit default swap (CDS) spreads have narrowed, signaling improved market confidence in the country’s financial stability [1].
MUFG maintains its end-Q2 USD/IDR forecast at 17,000 and anticipates a gradual recovery for the rupiah as stabilisation forces continue to build [1].
CONCLUSION
MUFG’s analysis suggests that the Indonesian rupiah is undervalued and poised for near-term stability, with policy interventions and narrowing CDS spreads supporting market confidence. The bank’s forecast for USD/IDR at 17,000 by end-Q2 reflects expectations of gradual improvement in the rupiah’s performance. Overall, the outlook is cautiously optimistic, with stabilisation forces expected to strengthen in the coming quarters.