Rupiah Weakness Persists Amid Dollar Strength, Oil Rally

The Indonesian rupiah weakened toward 16,950 per dollar on Friday, marking a fourth straight session of losses as the dollar index firmed on safe-haven demand amid an ongoing Middle East conflict with little sign of de-escalation. Traders also stayed cautious ahead of Bank Indonesia’s policy meeting next week and the upcoming Eid holiday. In February, the central bank held its benchmark rate at 4.75% for a fifth consecutive time, in line with estimates, after cutting a total of 150 bps since September 2024. Still, policymakers have indicated they are seeking room for further easing to support growth after last year’s Sumatra disaster weighed on activity. Meanwhile, the government projects the economy will expand 5.5%–6% in 2026, up from 5.11% in 2025. For the week, the rupiah is on track to edge 0.2% lower despite active central bank intervention in spot and forward markets.

The Indonesian rupiah slipped to around 16,910 per dollar on Thursday, marking a third straight session of losses as the dollar index firmed and oil prices resumed their rally, heightening global inflation risks and tempering expectations for near-term Federal Reserve rate cuts. Caution also grew ahead of Bank Indonesia’s policy meeting next week, after the central bank held its benchmark rate at 4.75% in February for a fifth consecutive gathering, following a total 150bps of easing since September 2024. Policymakers have signaled scope for further cuts if conditions allow, aiming to support growth after last year’s disaster in Sumatra weighed on activity. Bank Indonesia expects momentum to improve in Q1 2026, driven by stronger household spending during the festive season and sustained investment. Despite the pullback, the rupiah remains up about 1.2% year-to-date, supported by the central bank’s active intervention in spot and forward markets to safeguard currency stability.

The Indonesian rupiah was little changed, hovering around IDR 16,860 per dollar on Wednesday as the central bank pledged “firm and consistent intervention” in both onshore and offshore markets to safeguard the currency. Bank Indonesia has ramped up efforts to stabilise the rupiah since late 2024, selling dollars from its forex reserves, buying government bonds in the secondary market, and deploying non-deliverable forwards to help anchor market expectations. However, sustaining such intervention may prove challenging given thin reserve buffers, with forex reserves hitting a three-month low of USD 151.9 billion in February. On the policy front, the central bank is set to hold a meeting next week after keeping its benchmark rate unchanged at 4.75% for a fifth straight meeting in February, following a total of 150bps in cuts since September 2024. Globally, the dollar index held firm as Middle East tensions boosted demand for the safe-haven currency ahead of a key U.S. inflation reading.