Rupiah Finds Support After Surprise BI Rate Hike

The rupiah firmed to around IDR 18,100 per U.S. dollar on Tuesday afternoon, rebounding after an intraday low of 18,234. The recovery followed Bank Indonesia’s surprise off-schedule 25bp hike to 5.5%, after a 50bp lift at its regular policy meeting in May, underscoring its resolve to stabilise the currency and keep inflation within target amid Middle East–driven volatility. Officials stressed that defending the rupiah remains a priority as it lingers among Asia’s weakest performers this year. The currency had been weighed by heavy selling in Indonesian assets, eroding investor confidence amid domestic policy concerns and persistent external risks. Sentiment also improved as the dollar index eased from a nine-week high after Iran and Israel agreed to halt attacks, tempering geopolitical tensions and boosting risk appetite across global markets.

The Indonesian rupiah weakened to a near-record low of around IDR 18,170 per U.S. dollar on Tuesday, extending its losing streak to a sixth consecutive session. The drop came even as the U.S. dollar eased from a nine-week peak after Iran and Israel agreed to halt attacks, calming geopolitical tensions. Domestic strains kept pressure on the local currency, with May’s foreign reserves falling further, bond yields climbing, and import costs rising, underscoring external imbalances. Concerns also deepened after reports that Washington may phase in an 18% tariff on Indonesian goods from July 24, threatening export competitiveness and capital flows. Traders largely shrugged off a sharp rise in tax revenue in the first five months of 2026, which officials touted as evidence of a stronger economy. The rupiah has now lost nearly 9% year-to-date, cementing its position as Asia’s weakest currency despite Bank Indonesia’s surprise 50bp rate hike to 5.25% in May, its first increase since 2022.

The Indonesian rupiah slipped to a fresh low of around IDR 18,150 per U.S. dollar on Monday, marking the fifth session of weakness amid a firmer U.S. dollar after robust US labor market data reinforced expectations of a Fed interest rate increase later this year. Domestic strains deepened the slide after forex reserves fell for the fifth month in a row in May, hitting their lowest since June 2024 amid heavy intervention. Traders brushed off pledges from officials and Bank Indonesia to boost yields on local assets, with sentiment fragile amid concerns over President Prabowo’s expansive spending, rising fuel subsidies tied to the Iran conflict, market transparency, and export centralization plans. Foreign holdings of government bonds dropped to a near 20-year low as of June 2. Governor Perry Warjiyo said Bank Indonesia would lift interest on government deposits to ease rating-agency concerns. In May, the central bank raised the benchmark rate by 50bp to 5.25%, its first hike since 2022.