US Dollar/Indonesian Rupiah FX Spot Rate

Foreign funds flowed into Indonesian government bonds in a single day at 656.7 million dollars, the highest since 2019, after the rupiah strengthened and the market expected Bank Indonesia to hold interest rates. Data from Indonesia's Ministry of Finance indicated that foreign investors bought a net 656.7 million dollars last Thursday, marking the highest daily net purchase since July 2019. This brought foreign net purchases in August to 931.74 million dollars, with a trend of receiving capital inflows for a third consecutive month. The increased capital flows reflect recovering investor confidence after Bank Indonesia implemented various measures to attract foreign capital, alongside intervention in the foreign exchange market, which helped support the rupiah's appreciation. Since the beginning of August, the rupiah has strengthened by about 1.8 percent and has become one of the best-performing currencies in Asia. The large foreign capital inflow on Thursday occurred just one day after Bank Indonesia decided to hold its policy rate at its first monetary policy meeting under the leadership of Destry Damayanti, the acting central bank governor, while expanding an incentive program for exchange rate hedging to attract more capital into the country. Wee Khoon Chong, senior Asia-Pacific market strategist at BNY, said the high level of net purchases by foreign investors is a positive result of Bank Indonesia's strategic adjustment, as the market has eased concerns that the central bank would need to raise rates further to curb the rupiah's weakness. Meanwhile, stability in the foreign exchange market has brought investors back into the Indonesian bond market. Another factor supporting Indonesian bonds is President Prabowo Subianto's plan to reduce the government's budget deficit next year, which has eased concerns about the country's fiscal position. Jessica Tasijawa, fixed income analyst at PT Mirae Asset Sekuritas Indonesia, said improved fiscal credibility, a stronger rupiah, and the absence of Bank Indonesia rupiah securities auctions, or SRBI, in the past week were all factors spurring foreign capital inflows into the bond market. Bank Indonesia also announced on Friday that it would reduce the frequency of SRBI auctions from once a week to once every two weeks, after the acting governor signaled reduced reliance on that instrument to attract foreign investors into the rupiah money market. The rupiah has recovered more than 2.7 percent from its record low in early June, supported by Bank Indonesia's rate hikes, easing fiscal concerns, and the weakening of the US dollar. The currency's recovery has coincided with a decline in bond yields, with the 10-year bond yield down 52 basis points from its June peak, while the 5-year yield, which is more sensitive to interest rate trends, has fallen by as much as 69 basis points. Demand for Indonesian bonds was also reflected in last week's government bond auction, where the bid-to-target ratio stood at 2.65 times, the highest since December, while foreign investor orders surged to 17.2 trillion rupiah, or about 972 million dollars, more than double this year's average of 8.3 trillion rupiah, marking the highest foreign investor participation in an auction this year. Handy Yunianto, head of fixed income research at Mandiri Sekuritas, said the currency trend has a greater influence on foreign investors' decisions in the bond market than yield differentials. Therefore, if the rupiah remains stable or continues to strengthen, there is a chance of attracting further foreign capital into Indonesian bonds, even though the yield advantage of Indonesian bonds compared with other markets has narrowed.

This week in ASEAN, Singapore's new home sales in July jumped to 731 units from 156 units in June, after developers returned to launching new projects. Private home prices in the second quarter rose 0.5 percent, slowing from 0.9 percent in the previous quarter. Bank Indonesia decided to hold its benchmark rate at 5.75 percent for a second straight month, after raising rates by a total of 1 percent this year, to support the rupiah and curb inflation. The central bank expects the rupiah to keep strengthening and projects the economy will grow 4.9 to 5.7 percent in 2026. Thailand's prime minister proposed three approaches for dealing with global uncertainty at the Lowy Institute, namely strengthening ASEAN, maintaining strategic independence, and building economic resilience. He invited Australian businesses to use Thailand as an investment base to connect with the ASEAN market of nearly 700 million people, focusing on five sectors, and highlighted that investment promotion applications in 2025 surged to 1.87 trillion baht, up 67 percent from a year earlier. The cabinet approved expanding Nakhon Phanom's customs zones from one to three, supporting one-stop service and linking the R12 route connecting Thailand, Laos, Vietnam, and southern China, to boost Thai durian exports to the Chinese market. Singapore is preparing to exempt certain fund managers from profit taxes, expand the ONE Pass scheme, and introduce measures to attract hedge funds, after assets under management surged to nearly 7 trillion Singapore dollars amid intensifying competition with Hong Kong. China and Indonesia opened two-plus-two talks between their foreign and defense ministers, aiming to elevate cooperation on security, trade, and investment amid tensions in the South China Sea.

Indonesia's central bank has launched a new exchange-rate hedging instrument called Vastra to help foreign investors manage currency risk in their Indonesian asset portfolios. Bank Indonesia Deputy Governor Thomas Jiwandono said on Wednesday that Vastra will make it easier for foreign investors to access hedging transactions through overseas banks directly connected to partner banks in Indonesia. Investors can carry out back-to-back hedging transactions through partner banks at home and abroad without submitting documentation of underlying transactions or assets. Initially, Vastra mainly covers instruments in rupiah investment portfolios, namely government bonds, Bank Indonesia rupiah debt securities, and Bank Indonesia foreign-currency Sukuk instruments, with possible expansion to other instruments in the future. Vastra supports forward transactions, domestic non-deliverable forwards, and swap transactions, but not spot transactions. For buying foreign currency against rupiah, the maximum limit is set at no more than 100 percent of the value of assets in the investor's portfolio in Indonesia, while for selling foreign currency against rupiah, the maximum limit is set at 25 percent. The instrument also gives investors access to Bank Indonesia hedging tools, including domestic non-deliverable forwards and swap transactions with the central bank.

Bank Indonesia held its benchmark seven-day reverse repo rate at 5.75% at its regular meeting on the 19th, in line with market expectations and marking a second consecutive hold. The overnight deposit facility rate was also kept at 4.75%, and the overnight lending facility rate at 6.50%. The central bank said the decision was consistent with efforts to strengthen rupiah stability amid global disruptions from escalating Middle East tensions, and to support achieving the inflation target and sustainable economic growth. It also indicated it would continue and expand new monetary measures decided at the previous meeting, including lowering the premium on hedging swap transactions for foreign investors. The meeting was held under Acting Governor Destry Damayanti following the sudden resignation of former Governor Perry Warjiyo.

Bank Indonesia voted to hold its benchmark interest rate at 5.75% at today's meeting, marking a second consecutive hold and matching analyst expectations, after the rupiah strengthened nearly 1% this month, easing pressure for tighter monetary policy. The meeting was the first under acting governor Destry Damayanti, with the board having raised rates by a total of 1% this year to support the rupiah and restore investor confidence. Destry said the rupiah should continue to strengthen, and the central bank is using all monetary tools while expanding incentives to attract foreign capital inflows. It also maintained its economic growth forecast for Indonesia for 2026 at a range of 4.9% to 5.7% and will coordinate closely with the government to support the economy. Investors watched the meeting closely because Destry is the sole nominee put forward by President Prabowo Subianto to become governor of Bank Indonesia, after Perry Warjiyo abruptly resigned in late July, raising concerns about central bank independence.

Indonesian President Prabowo Subianto has nominated 62-year-old Destry Damayanti, the acting governor of Bank Indonesia, as the sole candidate to become the new central bank governor, replacing Perry Warjiyo who abruptly resigned for personal reasons late last month. The nomination immediately restored investor confidence, sending the rupiah to its strongest level in nearly two months. Presidential spokesman Prasetjo Hadi said the president submitted Destry's name today, along with names for the board of governors and senior deputy governor, to the House of Representatives. The House, where the ruling coalition holds a majority, has one month to vote, and according to records since 2008, Indonesia's parliament has never rejected a presidential nominee. Analysts say the market welcomed the move because Destry is a policymaker focused on currency stability, is flexible, and is ready to act decisively when market conditions require. Destry holds a master's degree from Cornell University, has served as senior deputy governor of the central bank since 2019, and has extensive experience in financial markets, having worked as an economist at Citibank and Bank Mandiri, and as a board member of the Indonesia Deposit Insurance Corporation. The new central bank governor will face the challenge of balancing inflation control and currency stability with the government's goal of accelerating economic growth to 8 percent from the current level of around 5 percent. Bank Indonesia's next monetary policy meeting is scheduled for August 18th and 19th.

Central banks in Asia's emerging markets are adjusting their strategies to cope with weakening currencies, increasingly turning to measures that attract foreign exchange inflows rather than relying solely on selling foreign reserves to intervene in markets. The Thai baht, Indonesian rupiah, and Indian rupee are among the five worst-performing currencies this year out of 22 emerging-market currencies tracked by Bloomberg. India has attracted nearly 40 billion dollars from overseas Indians through high-yield dollar deposit products. South Korea is pushing exporters to repatriate dollar earnings, leading the won to post its strongest monthly gain since 2022. Indonesia has drawn about 1.6 billion dollars in foreign capital into its bond market over the past two months. Meanwhile, foreign reserves of Indonesia, India, the Philippines, and Thailand have fallen by around 4 to 9 percent since the Iran conflict began. Analysts at MUFG Bank expect Indonesia and the Philippines may each raise interest rates twice this year, while South Korea could hike at least once more.

Asian stock markets opened higher this morning, with South Korea's Kospi index surging 2.4% to 6,963.35 points and Japan's Nikkei index rising 0.5% to 66,421.01 points, boosted by electronics and metals stocks. Investors are monitoring the conflict between the United States and Iran. The Houthi rebel group in Yemen claimed to have attacked two Saudi oil tankers in the Red Sea with missiles and drones. US President Donald Trump warned via Truth Social that if Iran attacks ships in the Strait of Hormuz, the US will retaliate by destroying an Iranian bridge or power plant each time. Meanwhile, Malaysia expressed deep concern over threats that could affect navigation through the Bab el-Mandeb Strait, a key strategic shipping route connecting Asia and Europe. On another front, Senior General Min Aung Hlaing, President of Myanmar, is scheduled to make an official visit to Thailand from August 3 to 4, during which Thailand plans to raise the issue of toxic substances in the Kok River. The Philippines lodged a strong protest with China over a confrontation in the South China Sea during talks between the foreign ministers of both countries in Manila. Meanwhile, Indonesia's central bank decided to hold its policy rate at 5.75%, along with the deposit rate at 4.75% and the lending rate at 6.50%, to defend the rupiah and support economic growth.

Bank Indonesia held its policy rate at 5.75% and shifted strategy to offer new incentives to support the rupiah instead of further rate hikes, amid concerns over the Middle East conflict and global inflationary pressures. It offered higher discounts on swap rates to hedge risks for foreign investors and provided spot and swap instruments denominated in Chinese yuan in offshore markets. Governor Perry Warjiyo said these incentives are more effective in attracting foreign capital inflows and managing the exchange rate without raising domestic interest rates. While headline inflation accelerated to 3.34% in June, core inflation is expected to remain below 3%, and the central bank maintained its 2026 growth forecast at 4.9% to 5.7%.

The Indonesia stock market has finished higher in nine straight sessions, advancing more than 460 points or 7.5 percent, but investors are expected to cash in on Wednesday. The Jakarta Composite Index jumped 108.24 points or 1.74 percent to close at 6,340.02 on Tuesday, with gains across the board especially among resource and energy companies. The global forecast is positive after Wall Street rallied on solid earnings news, with the Dow rising 385.38 points to 52,224.64, the NASDAQ advancing 329.13 points to 25,837.21, and the S&P 500 gaining 65.92 points to 7,509.20. Crude oil prices spiked as the U.S. attacked Iran for the 10th straight day, reinforcing supply concerns, with West Texas Intermediate crude for August delivery up $1.77 to $85.00 per barrel. The central bank in Indonesia will wrap up its monetary policy meeting later today and is expected to keep its benchmark lending rate unchanged at 5.75 percent, along with the deposit facility rate at 4.75 percent and the lending facility rate at 6.50 percent.

Bank Indonesia's proactive tightening and foreign exchange measures have supported the Indonesian rupiah, according to MUFG's Lloyd Chan, though elevated US yields and domestic policy uncertainty are testing that buffer.