Rupiah Weakens as Central Bank Signals Rate Cuts

The Indonesian rupiah hovered near IDR 17,400 per dollar on Wednesday, close to record lows as concerns over external buffers deepened. Declining foreign reserves have raised doubts about the central bank’s ability to support the currency, with markets awaiting April data due Thursday after March figures fell to a near two-year low. Exports also shrank in March, the first time since December, adding pressure to the external balance. Authorities have moved to respond: the chief economic minister said the government is working with Bank Indonesia to expand swap lines with China, Japan, and South Korea, while the central bank cut the cap on undocumented U.S. dollar cash purchases to USD 25,000 from USD 50,000 to curb speculation. April Inflation stayed contained at 2.42%, within the central bank’s limit, though risks persist from rising energy costs and supply disruptions linked to Middle East tensions. Meantime, the U.S. dollar index eased on hopes of a potential Washington–Tehran deal.

The rupiah slipped past IDR 17,400 per dollar on Tuesday, extending losses for a third session to a new record low. Sentiment was pressured by a firmer U.S. dollar index, as renewed hostilities in the Middle East boosted safe-haven demand. Meanwhile, concerns over Indonesia’s external buffer reemerged ahead of April’s foreign reserves data, after March figures fell to a near two-year low. External pressures intensified as exports shrank in March, the first in four months. Still, support came from the central bank's reassurances, pledging consistent and measured steps to stabilise the rupiah. It added that the currency weakness was broadly in line with regional peers, stressing that authorities will optimise interventions through offshore and domestic NDFs, spot operations, and bond buying. Meanwhile, the economy grew 5.61% yoy in Q1 2026, the fastest pace since mid-2022, supported by lower borrowing costs and government stimulus, offering some support to the rupiah.

The rupiah weakened for a second session on Monday, hovering near IDR 17,370 per dollar, as doubts lingered over the central bank’s policy effectiveness after holding rates steady since October. External pressures mounted, with Indonesia's exports down for the first time in four months in March, while imports grew the least since December, reflecting soft domestic demand following higher non-subsidized fuel prices. Sentiment remained cautious ahead of Tuesday’s Q1 GDP data, with markets bracing for a slowdown from Q4’s three-year high amid fiscal strain and debt burdens. Concerns over buffer capacity persisted as Indonesia's foreign reserves hit a near two-year low in March, adding pressure on the rupiah. Still, inflation offered some relief, easing to 2.42% in April, the lowest in eight months, though risks remained as unresolved Middle East tensions kept oil prices elevated. Globally, the U.S. dollar index held steady, with traders watching for signs of regional forex stabilization.