MUFG reports that geopolitical risks remain elevated, but valuation measures such as the real effective exchange rate (REER) indicate the rupiah is undervalued against the US dollar.
The bank expects the rupiah to stabilise in the near term rather than weaken sharply. It keeps its end‑Q2 forecast for USD/IDR at 17,000.
MUFG adds that USD/IDR has moved into overbought territory, which reduces the appeal of further US dollar gains at current levels. It expects rupiah performance to improve gradually in later quarters as support measures and flows strengthen.
The note says active policy intervention has reduced foreign exchange volatility and slowed the pace of USD/IDR rises. It also states that Indonesia’s sovereign CDS spreads have narrowed.
The article was produced using an artificial intelligence tool and reviewed by an editor.
We believe geopolitical risks remain high, but the Rupiah is now looking meaningfully undervalued against the US dollar based on real effective exchange rate models. With the USD/IDR pair moving into overbought territory, we feel the risk-reward of chasing further dollar upside is becoming less attractive at current levels. Our base case is for the Rupiah to stabilize in the near term rather than see a disorderly fall.
This view is supported by recent actions and data. Bank Indonesia’s surprise 25 basis point rate hike last week to 6.75% signals a strong commitment to currency stability. Furthermore, Indonesia has now recorded 47 consecutive months of trade surpluses, with the latest March 2026 figure at a healthy $3.5 billion, providing a solid fundamental backdrop for the currency.
For derivative traders, this suggests implied volatility may begin to decline as the central bank actively suppresses sharp movements. The expectation for USD/IDR to move toward 17,000 by the end of June implies strategies that benefit from range-bound trading or a gradual, modest appreciation of the Rupiah could be favorable. We have seen active policy intervention successfully slow the pace of dollar gains, and Indonesia’s sovereign CDS spreads have narrowed in response.
We saw a similar pattern in late 2025, when a spike in the currency pair was met with forceful policy measures that led to a period of calm. While global tensions could still cause short-term spikes, the combination of an undervalued currency and a proactive central bank points toward stabilization. This suggests selling USD/IDR volatility at elevated levels may be a prudent approach in the coming weeks.
