Rupiah Struggles Near Historic Low as External Buffers Thin

The Indonesian rupiah hovered near IDR 17,020 per dollar on Wednesday, after briefly sliding to a record low of around IDR 17,100 in the prior session. Sentiment remained fragile, with a sharp pullback in the dollar index offering only limited relief after U.S. President Trump decided to delay a potential strike on Iran by two weeks. Locally, Indonesia remains exposed to global oil price swings, which continue to pose fiscal risks. External cushions also weakened, with March forex reserves falling to their lowest in nearly two years, capping the country’s ability to absorb external shocks. Still, Jakarta insisted it retains fiscal space, citing a “buffer” to manage rising energy costs. Meanwhile, Bank Indonesia reaffirmed that stabilizing the rupiah and curbing excessive volatility is its top priority, adding that it has deployed interventions and stands ready to use all available policy tools. The central bank added that the currency’s weakness is largely driven by global factors.

The Indonesian rupiah slid to a record low of around IDR 17,080 per dollar on Tuesday, extending its downtrend as the dollar index firmed. Pressure mounted amid escalating Middle East tensions, with President Trump setting a deadline for Iran to strike a deal or face possible attacks. Bets that the U.S. Fed will hold rates steady this month further buoyed the greenback. Locally, surging oil prices and geopolitical risks stoked inflation concerns and strained fiscal conditions, notably under President Prabowo’s flagship program, weighing on the current account. External buffers weakened as February’s trade surplus narrowed on softer exports and higher imports, while forex reserves fell to a three-month low in February. Capping losses, Bank Indonesia confirmed intervention in spot and non-delivery forward markets to support the currency. Meantime, the government pledged to maintain fuel subsidies and cap the fiscal deficit at 3% of GDP this year, assuming oil averages USD 100 per barrel.

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.