Rupiah Steady as Markets Await BI, Fed Rate Decisions

The Indonesian rupiah hovered near IDR 17,750 per U.S. dollar on Wednesday, little changed from the prior session as traders awaited the central bank's interest rate decision Thursday. Bank Indonesia began its two-day policy meeting today and is widely expected to further raise borrowing costs after a cumulative 75bps hikes since May. While tighter monetary policy should help anchor inflation expectations and support the rupiah, elevated borrowing costs could gradually weigh on domestic demand. On the fiscal front, local media reported that the government has cut the budget for its flagship Free Meal Program by an estimated IDR 67 trillion as President Prabowo seeks broader spending efficiency. Jakarta also reaffirmed that subsidized fuel and LPG prices will remain unchanged. Globally, the U.S. dollar index was flat as markets awaited the Fed's policy decision, where interest rates are widely expected to remain unchanged at the first meeting chaired by Kevin Warsh.

The Indonesian rupiah edged down to around IDR 17,700 per U.S. dollar in thin holiday trading on Tuesday, reversing gains from the prior two sessions and retreating from a three-week top. Sentiment weakened as traders grew concerned about the rising cost of defending the currency after forex reserves fell in May to their lowest level in almost two years, suggesting continued central bank intervention. Domestic fundamentals were also weak, with May consumer mood falling to its lowest since September 2025 and April retail sales down for the first time in a year. External risks added pressure as Washington prepares to phase in an 18% tariff on Indonesian goods from July 24, threatening exports and capital inflows. Still, losses were capped by optimism that Bank Indonesia may remain hawkish after a total of 75bps of hikes since May, with its two-day policy meeting starting Wednesday. Globally, the U.S. dollar steadied ahead of the Fed’s first policy decision under new Chair Kevin Warsh.

Indonesia’s rupiah continued to firm on Monday, standing below IDR 17,700 per U.S. dollar and marking its highest level in three weeks, as broad dollar weakness buoyed emerging-market currencies. The dollar index slipped to its lowest in over a week after the U.S. and Iran reached a peace deal in the Middle East, easing haven demand. Locally, investors positioned ahead of Bank Indonesia’s policy meeting later this week, with speculation the board may keep its tightening bias after a total of 75 bps of hikes since May. Support also came from stabilisation efforts, including Deputy House Speaker Sufmi Dasco’s call for citizens to sell dollars, while officials stressed that centralizing export proceeds via a state-owned institution would not affect commodity pricing or contracts. However, gains were capped by fragile fundamentals: May’s drop in foreign reserves, softer consumer mood, April’s fall in retail sales, higher non-subsidized fuel costs, and persistent labor market concerns.