IDR was one of the worst performers in AXJ in August, falling by 3.96% against the USD. IDR has fallen at a much faster pace and unlikely to continue the underperformance, says RBC Capital Markets. Consensus expects BI to cut its benchmark interest rates by 50bps to 7% in 2016.



However, BI Governor Martowardojo was probabily explicit in August in saying BI expects the benchmark rate at 7.5% for next year, that IDR was undervalued and a joint policy effort from both BI and the government was required to stabilize the economy and the IDR.



Upside risk to market expectations of further BI easing is seen since CPI Inflation remains well above target, added RBC Capital Markets. The foreign investors' share of outstanding Indonesian government bonds increased to a record 39.6% in June, one of the highest shares in the region and real interest rates are barely positive. BI must remain vigilant against inflation and a renewed widening of the current account deficit, suggests RBC Capital Markets.