Rupiah Weakens as Easing Outlook Weighs

The Indonesian rupiah extended its losses on Friday, slipping past IDR 17,700 per U.S. dollar as the dollar index held near a six-week high amid elevated oil prices, sticky U.S. inflation, and rising Treasury yields. Domestic data further pressured sentiment, with the current account deficit widening to its deepest level in more than six years, underscoring concerns over Indonesia’s external balance. Pressure on the local currency has intensified since April, due to capital outflows, fiscal strains, and inflation risks tied to Middle East tensions. Bank Indonesia’s larger-than-expected rate hike earlier this week provided little relief, after policymakers warned that higher energy costs still threaten the rupiah. Meanwhile, forex reserves have dropped about USD 10 billion this year through April on continued intervention. The rupiah is set for an eighth weekly drop, down 1.4% so far and near 6% ytd, though the central bank expects stabilisation by mid-year as seasonal pressures ease.

The Indonesian rupiah slipped to around IDR 17,670 per dollar on Thursday after briefly hitting below 17,600 in the prior session, as caution set in ahead of Q1 current account data due Friday. Focus remains on Indonesia’s external balance after the current account swung into deficit in Q4, largely due to a widening oil trade gap. Support from Bank Indonesia’s larger-than-expected rate hike faded, with Governor Warjiyo warning that higher global energy costs still threaten the currency despite mild inflation. He also noted that forex reserves have fallen by about USD 10 billion this year through April due to continued intervention. The rupiah is heading for an eighth straight weekly fall, down 5.6% ytd, but policymakers expect seasonal stabilisation by mid-year. Dollar demand currently remains elevated amid dividend repatriation, debt payments, and hajj-related flows. Globally, the U.S. dollar index eased from a six-week peak on hopes for a U.S.-Iran peace deal, tempering haven demand.

The Indonesian rupiah firmed to around IDR 17,600 per U.S. dollar on Wednesday afternoon after the central bank delivered a larger-than-expected interest-rate hike to reinforce its defense of the currency, which had recently fallen to successive record lows. Bank Indonesia raised borrowing costs by 50bps to 5.25%, marking its first rate increase since 2022. The benchmark rate had been kept at 4.75% since October. The move came as Bank Indonesia sought to curb mounting pressure on the rupiah amid persistent capital outflows, widening fiscal concerns, dividend repatriation, and rising inflation risks linked to escalating tensions in the Middle East. Authorities have already intensified interventions in both spot and non-deliverable forward (NDF) markets while introducing various measures to restore market confidence and limit further currency volatility. Governor Perry Warjiyo signaled policymakers would prioritize stability, with growth support to come through macroprudential efforts.