Rupiah Weakness Persists Ahead of BI Rate Decision

The Indonesian rupiah edged up to around IDR 17,490 per dollar on Wednesday, recovering after briefly sliding past 17,500 the prior day to a fresh record low. Support came from growing speculation that the central bank may lift its benchmark rate at next week’s meeting, after keeping it at 4.75% since October, to stem capital outflows and defend the currency. Sentiment also improved as the government will launch a bond stabilisation fund to support the debt market amid rising yields and continued foreign selling. However, the rebound was limited as the dollar index firmed further after higher-than-expected U.S. inflation data, dampening hopes for near-term Fed cuts. President Prabowo recently criticized Governor Perry Warjiyo over the rupiah’s weakness while backing seven new measures, including tighter forex rules and liquidity adjustments. Even so, the rupiah has lost about 4.6% this year, weighed down by soft fundamentals, shrinking reserves, fiscal strains, and sustained outflows.

The Indonesian rupiah weakened toward a fresh low of IDR 17,500 per dollar on Tuesday, extending losses for a fourth session as the U.S. dollar firmed after President Trump warned the Iran cease-fire was “on life support". Locally, pressure mounted amid doubts over Bank Indonesia’s capacity to defend the currency, with local media reporting President Prabowo reprimanded Governor Perry Warjiyo over the prolonged weakness. Still, Prabowo endorsed seven BI measures, from tighter forex rules to liquidity tweaks and potential cuts to dollar purchase limits. Domestic fundamentals added strain: April retail sales grew the least in nine months, consumer mood hovered near a five-month low, and foreign reserves fell for a fourth month to their lowest since mid-2024. External risks compounded the slide, with Middle East tensions threatening energy costs, capital outflows draining bond and equity markets, and fiscal pressures deepening, leaving the rupiah vulnerable despite soft April inflation.

The rupiah slipped toward IDR 17,400 per dollar on Monday, extending losses for a third straight session and hovering near record lows as the U.S. dollar index firmed on concerns that U.S.-Iran peace talks could falter. Skepticism also lingered over Bank Indonesia’s ability to safeguard the currency despite measures to tighten forex rules, bolster liquidity, and enhance macroprudential coordination. Meantime, forex reserves fell for a fourth month in April to their lowest in nearly two years, underscoring fragile external buffers. Domestic sentiment added strain, with consumer sentiment stuck near a five-month low amid worries over jobs and incomes. Risks tied to Middle East tensions clouded the outlook through higher energy costs and supply chain disruptions, though April inflation stayed manageable. Pressure had already been mounting before the Gulf conflict escalated in late February, driven by fiscal vulnerabilities and persistent capital outflows from bonds and broader markets.