MarketPR
$FIAT traders have a new macro pressure point to watch: Commerzbank's foreign exchange strategists warned this week that Bank Indonesia may need to raise interest rates further to arrest the rupiah's slide, as a narrowing yield gap with the United States reduces the currency's draw for foreign capital.
The German bank's note ties the rupiah's weakness to dollar strength, shrinking commodity export revenues, and the risk of accelerating capital outflows if BI stands pat.
Rate Differential Driving the Pressure The central issue Commerzbank identifies is the yield differential between Indonesia and the United States.
Despite cumulative rate increases by Bank Indonesia over the past year, the yield advantage on rupiah-denominated assets has compressed, making them less competitive for foreign investors.
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