Rupiah Slides to Fresh Low on Strong Dollar, Fragile Sentiment

The Indonesian rupiah slipped toward a new low of around IDR 17,290 per dollar on Thursday, marking a third session of losses amid a firmer U.S. dollar that drew support from haven demand following stalled U.S.–Iran peace efforts. Wednesday's move by Bank Indonesia to keep interest rates unchanged for a seventh straight meeting offered little support, as the currency repeatedly hit record lows this month. Pressure has been exacerbated by Indonesia’s reliance on imported energy, despite recent hikes in non-subsidized fuel prices. Governor Perry Warjiyo warned higher oil prices could widen the current account deficit to 0.5%–1.3% of GDP, up from an earlier estimate of 0.1%–0.9%. In response, Bank Indonesia has stepped up intervention, pushing forex reserves to a two-year low while lifting bond yields to attract inflows. Still, sentiment remains vulnerable, as fiscal concerns surrounding President Prabowo’s key programs add to broader risk-off sentiment tied to the Middle East conflict.

The Indonesian rupiah was little changed, hovering around IDR 17,170 on Wednesday afternoon after the central bank left its benchmark rate at 4.75% for a seventh straight meeting, as expected. Governor Perry Warjiyo said the decision aims to stabilise the currency, stressing readiness to adjust policy and intervene while keeping inflation within target. He noted that forex reserves around USD 148 billion in March remain adequate, with BI prepared to step up intervention in spot and forward markets. Warjiyo noted the rupiah is undervalued relative to fundamentals. The currency has touched record lows several times this month, rattled by Indonesia’s reliance on imported energy despite recent non-subsidized fuel price hikes. Persistent capital outflows also weighed, reflecting fiscal concerns and broader risk-off sentiment tied to the Middle East conflict. Policymakers kept their 2026 growth outlook at 4.9% to 5.7% and expect inflation to stay within the 1-1/2% to 3-1/2% band until 2027.

The Indonesian rupiah hovered near IDR 17,170 on Wednesday, holding above the key 17,000 level after briefly hitting a record low around 17,200 last week. Sentiment remained fragile as the U.S. dollar firmed, with haven demand rising after plans for a second round of U.S.–Iran peace talks collapsed. Bank Indonesia is set to announce its policy decision later today, with markets expecting a seventh straight rate hold at 4.75%, as policymakers signal limited room for further easing after delivering 150bps of cuts since September 2024. Indonesia remains exposed to higher energy costs as a net oil and gas importer despite recent hikes in non-subsidized fuel prices. Inflation risks have intensified, while capital outflows persisted amid the dividend season. Meantime, forex reserves fell to a two-year low in March as the central bank stepped up intervention. Fiscal pressures also grew under President Prabowo’s key programs, though officials have pledged to keep the 3% deficit cap this year.