Rupiah Under Pressure After Prabowo Rebuke

The rupiah weakened toward a fresh low of IDR 17,500 per dollar on Tuesday, extending losses for a fourth straight 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.

The rupiah weakened toward IDR 17,390 per dollar on Friday, extending prior losses, as the U.S. dollar firmed amid renewed hostilities between Washington and Tehran around the Strait of Hormuz. Pressure also mounted after April data showed Indonesia’s forex reserves fell for a fourth straight month to their lowest in nearly two years, underscoring fragile external buffers. Meanwhile, risks from Middle East tensions to energy costs and supply chains remain even as April inflation stayed manageable. Bank Indonesia’s interventions and tighter safeguards, including stricter oversight of corporates with heavy forex needs and lower caps on dollar purchases without documentation, helped steady the currency through the week. Even so, the rupiah has shed almost 4% year-to-date, ranking among Asia’s weakest. Strains had already been building before the Gulf conflict escalated in late February, as investors flagged fiscal vulnerabilities and transparency concerns in local capital markets.