USD/IDR: Rupiah's fair value upgraded to 13,500 – ANZ

A newfound resilience in external sector parameters should ensure that the upcoming tapering by the US Federal Reserve will not become a ‘tantrum’ for Indonesian assets. The better external position is a key reason behind the view of economists at ANZ Bank that the rupiah’s fundamental fair value is around 13,500.

Indonesia’s newfound resilience to remain underpinned

“Owing to a combination of structural and cyclical tailwinds, which in our opinion are here to stay, Indonesia’s external metrics have decisively strengthened. This improvement should be a potent antidote to the oncoming tapering by the US Federal Reserveand unlike in 2013, we do not foresee Indonesian assets being overly stressed.”

“Not only is the overall BoP likely to remain in surplus, it is also likely to be qualitatively superior, thanks to a lower current account deficit, positive equity portfolio flows and higher FDI inflows. This is a key factor behind our view that the rupiah’s fundamental fair value has improved, which we estimate at around 13,500.”

“Based on the current spot rate, this means the rupiah is under-valued by more than 6%.”