Indonesian Rupiah: Market tests Indonesia policy credibility – Commerzbank

Commerzbank analysts report that USD/IDR extended gains as investors assessed the appointment of Suahasil Nazara as Indonesia’s new Finance Minister, the third in under two years. While markets took some reassurance from his technocratic profile and emphasis on fiscal prudence, the muted reaction suggests investors await evidence of a more credible and predictable fiscal stance.

Fiscal credibility and Rupiah reaction

"President Prabowo Subianto abruptly dismissed Finance Minister Purbaya Yudhi Sadewa yesterday after around one year in office. Deputy Finance Minister Suahasil Nazara was appointed as his replacement, making him Indonesia’s third finance minister in less than two years."

"Widely viewed as a technocrat, Nazara is expected to prioritise fiscal prudence. He served as deputy finance minister under Sri Mulyani from 2019 and was closely involved in fiscal policymaking and budget management. Before that, he held several senior roles at the Finance Ministry, including head of the Fiscal Policy Agency from 2016 to 2019."

"Nazara’s appointment could signal greater emphasis on fiscal prudence and policy continuity. This follows President Prabowo’s selection of technocrat and continuity candidate Destry Damayanti as Bank Indonesia (BI) governor last month. Together, these appointments should provide some reassurance to markets over adherence to the 3% fiscal-deficit ceiling and continuity in BI’s policy framework. They may also reduce concerns that fiscal expansion will place greater pressure on BI to accommodate the government’s growth agenda."

"The market response suggested some initial relief but remained cautious. The Jakarta Composite Index (JCI) recovered from an intraday decline of 2.6% to close 0.1% lower yesterday. The 10Y Indonesian government bond yield rose 1bp to 7.16%, while the USD/IDR 1-month non-deliverable forward (NDF) remained within the 17,700-17,740 range. Notably, Indonesia’s 5Y Credit Default Swap (CDS) spread widened to 83.7bp from 82.8bp last Friday."

"This muted market response suggests that investors are awaiting evidence that Nazara’s appointment will translate into a more credible fiscal stance. Frequent turnover at the Finance Ministry could continue to weigh on policy predictability, particularly if Nazara has limited influence over spending priorities. Market confidence may improve if he is given sufficient latitude to strengthen the fiscal position through tighter spending control and/or additional revenue measures as the government finalises the 2027 budget."

"In FX, USD/IDR rose 0.3% to 17,648 yesterday, marking its third consecutive gain. The pair showed little reaction to Sadewa’s dismissal and continued to track higher global crude oil prices and broad USD strength. Year-to-date, IDR is down 5.4% vs the USD, compared to the average for Asian currencies ex-Japan of -1.4%."