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- DEER: Policy and the undervalued JPY 22 Sep 2026
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Indonesia’s parliament held the fit-and-proper hearings for the BI Governor nominee Destry Damayanti on Wednesday. In early remarks at the session, she emphasized that the central bank had a robust mix of monetary, macroprudential and payment system tools at its disposal. Importance of policy synergy and coordination with the government and related agencies were also highlighted. This implied, in our view, that the evolving economic challenges require closer coordination between fiscal and monetary authorities, given the nature of shocks, which span geopolitics to interventionist trade policies to volatility in the financial markets. The message appeared to stress that policy synergy must enhance, not compromise, central bank credibility, requiring a delicate balancing act. The Governor-in-waiting is set to serve the full five-year term as head of the central bank.
Onshore markets turned more constructive this month, amid easing concerns over policy uncertainty, stability in the currency and affirmative remarks on the fiscal outlook. The growth outlook is also supportive, besides a manageable inflation profile. Policy packages by BI in June-July introduced enhancements to hedging activity, providing swap incentives and broadening those linked to local currency transactions. This signalled a shift in the central bank’s focus from purely rate hikes to non-rate measures to support the rupiah. USDIDR is off July highs to hover within 17700-17900, helped also by the broader USD pullback (IDR up +1.6% in Aug). The bond curve has retained a steepening bias with the 10Y yield back around 7% tracking global cues, while the short-to-belly papers continue to benefit from a lower frequency of SRBI auctions and pricing out of further policy tightening expectations. Foreign investors have turned positive on IDR debt, with nearly $1bn inflows in Aug yet far (ownership at ~13% of outstanding issuance), besides strong appetite by retail and onshore institutions. We expect the steepening bias to sustain as the incoming Governor is unlikely to act until FX or inflation pressures resurface.
We expect the BSP to raise the benchmark rate by 25bp to 5% today. Recent communication from the Governor has been focused on inflation risks, despite readings coming off recent highs (but remains way higher than target) and 2Q growth slowing sharply. Officials would likely prefer to see a more convincing disinflationary trend before drawing a pause. The currency's drift to record lows alongside a renewed rise in Brent prices adds to the case for a pre-emptive tightening response, with the call strengthened further by moderation in the foreign reserves position. Beyond a likely hike in August, our baseline forecast is for one more hike within the year before slipping into a prolonged pause. Policymakers will monitor signs of a potential shift in the US Fed’s policy bias as well as US yield movements in the near-term.
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Related Insights
- DEER: Policy and the undervalued JPY 22 Sep 2026
- USD Rates: Optimistic start22 Sep 2026
- Hoping for relief to shift from the Fed to geopolitics22 Sep 2026
Related Insights
- DEER: Policy and the undervalued JPY 22 Sep 2026
- USD Rates: Optimistic start22 Sep 2026
- Hoping for relief to shift from the Fed to geopolitics22 Sep 2026