Pressure on Rupiah Persists amid Strong Dollar, Energy Risks

The Indonesian rupiah hovered around IDR 17,050 on Monday, extending weakness for a third session as the U.S. dollar firmed amid escalating Iran tensions after President Trump set a new deadline and intensified threats against Tehran. Prolonged energy shocks risk lifting inflation in Southeast Asia’s largest economy, worsening current account dynamics via a higher import bill. External buffers also showed strain, with February’s trade surplus narrowing on softer exports and elevated imports. On inflation, while March figures eased to 3.48% and returned to Bank Indonesia’s target range following February’s 4.76%, risks remain skewed upward. Markets also awaited March’s foreign reserves data after February’s drop to a three-month low. Medium-term commodity pressures could add fiscal strain as President Prabowo advances his flagship programs. Still, downside pressure was tempered by expectations that the central bank will remain cautious after 150bps of rate cuts since September 2024.

The Indonesian rupiah hovered near the key IDR 17,000 level on Friday in holiday-thinned trade, heading for a modest weekly decline amid a firm U.S. dollar index as Middle East tensions persisted. President Trump said the war with Iran could last another two to three weeks, though he signaled it was nearing an end. Domestically, caution lingered ahead of March's forex reserves data after February’s drop to a three-month low. Trade figures showed subdued exports despite resilient imports during the festive period, underscoring external pressures. Inflation risks also grew amid elevated oil prices, even as annual figures eased in March, back within Bank Indonesia’s target. As a net oil importer, Indonesia remains vulnerable to sustained energy costs, which could widen the fiscal deficit under President Prabowo’s spending plans. Authorities are exploring measures to limit the impact, while Bank Indonesia has moved to curb speculation after cutting rates by 150bps since September 2024.

The Indonesian rupiah remained weak on Thursday, hovering just above the psychological IDR 17,000 per dollar and extending its recent slide. Pressure was driven by a firm U.S. dollar index, reinforced by geopolitical tensions after President Donald Trump, in a national address, signaled possible further military action against Iran. Domestic buffers also weakened as the trade surplus narrowed in February, reflecting subdued exports and solid import growth. At the same time, caution mounted ahead of March's forex reserves data, following February’s fall to a three-month low. Elevated oil prices and geopolitical risks continue to pose upside threats to inflation, even as annual readings eased to 3.48% in March, back within Bank Indonesia’s target range. Fiscal strain is building amid sustained energy costs and President Prabowo’s flagship program. Still, Bank Indonesia has introduced new measures to curb speculation, underscoring its priority to safeguard currency stability.