Rupiah Falls to New Low Despite Expectations of BI Rate Hike

The Indonesian rupiah weakened to a fresh low near IDR 17,730 per U.S. dollar on Tuesday, extending losses for a fourth straight session as pressure intensified while Bank Indonesia began its two-day policy meeting. The central bank is expected to raise interest rates by 25bps to 5% after holding steady since October, but worries deepened over the broader fallout from the currency’s slide. Debate sharpened after President Prabowo drew fire for remarks suggesting villagers are insulated from depreciation as they do not use dollars. Caution also heightened before the Q1 current account data later this week, after figures swung into deficit in Q4 due to a wider oil trade gap. Traders largely shrugged off Governor Perry Warjiyo’s assurance to parliament that policymakers had “increased the dosage” of intervention and stood ready with further steps, stressing conditions were “not business as usual.” Globally, the dollar index held steady ahead of FOMC minutes and flash U.S. PMI data.

The Indonesian rupiah slipped to a new low of around IDR 17,670 per dollar on Monday, extending losses for the third session, as the U.S. dollar index hit a six-week high after inflationary pressures linked to the Middle East war reinforced bets that the Fed could lift interest rates later this year. Locally, caution prevailed ahead of Q1 current account data later this week, after figures swung to a deficit in Q4 due to a larger oil trade shortfall. Meanwhile, President Prabowo signaled that the currency's slide would not affect villagers because they did not use dollars. Focus now shifts to Bank Indonesia’s policy meeting in the coming days, with some analysts calling for a rate hike to stem outflows. Prabowo recently rebuked Governor Perry Warjiyo over the rupiah’s fall even as he approved tighter forex rules and liquidity steps. Indonesian assets were already under strain before the Iran war amid investor concerns over fiscal conditions, inflation risks, and market transparency.

The Indonesian rupiah slid to a fresh record low of near IDR 17,600 per dollar in thin Friday trading, extending losses from the prior session as a firmer U.S. dollar and rising U.S. cost pressures reinforced bets that the Fed could keep interest rates higher for longer. For the week, the rupiah is on track for a seventh straight weekly drop, down roughly 0.5%, amid concerns over declining foreign reserves, fiscal strains, and inflation risks linked to the Iran war, which could lift energy costs despite Indonesia’s mild inflation reading in April. Caution also grew ahead of Q1 current account data, after figures swung to a deficit in Q4 due to a larger oil trade shortfall. Still, the currency’s losses were capped by speculation that Bank Indonesia may raise its key interest rate next week to 5% from 4.75%, where it has remained since October. Earlier this week, the government launched a bond stabilisation fund to support debt markets amid rising yields and persistent foreign outflows.