Rupiah Set for Weekly Decline

The Indonesian rupiah traded near IDR 17,950 per U.S. dollar on Friday, extending its drop as broad-based dollar strength persisted after the Fed reinforced its hawkish stance despite keeping interest rates unchanged last week. Locally, sentiment weakened after the government included a controversial provision in new legislation granting blanket legal immunity to buy bonds issued by state investment fund Danantara. The clause shields such transactions from criminal, civil, and tax investigations while preventing bond records from being used as evidence in court or tax assessments, raising concerns over governance and transparency. Nerves also emerged ahead of June CPI data, with food costs in focus after May’s fastest annual rise in seven months. The currency has fallen about 1% this week, erasing gains from the prior two periods, though losses were capped by news that Jakarta may trim more than USD 2 billion from President Prabowo’s flagship program to reinforce fiscal discipline.

The Indonesian rupiah hovered above IDR 17,900 per U.S. dollar on Thursday, remaining under pressure as the U.S. dollar index held near a 14-month high, as the Federal Reserve indicated support for tighter monetary policy. The hawkish outlook outweighed the positive impact of progress in U.S.-Iran peace talks, which had eased geopolitical tensions and reduced demand for haven assets. Locally, traders looked ahead to next week's June inflation data, with particular focus on food prices after they posted the fastest annual rise in seven months in May, reflecting the impact of El Niño. Still, weakness was limited by foreign inflows into the central bank's one-year securities and government bonds, totaling about IDR 105 trillion so far in June. Lower oil prices, which have retreated toward pre-Iran conflict levels, also eased concerns over Indonesia's fiscal burden. Separately, MSCI reaffirmed Indonesia's emerging market status despite highlighting concerns over market transparency.

The Indonesian rupiah dipped to around IDR 17,950 per U.S. dollar on Wednesday, marking its fourth straight session of losses as the dollar index hovered near a 14-month high on expectations of further Fed tightening. Risk aversion also deepened after a sharp sell-off in tech stocks, boosting demand for haven assets. Locally, caution grew ahead of next week's June CPI data, with concerns that food costs could keep price pressures elevated. Annual inflation quickened to 3.08% in May from the prior 2.42%, driven by higher staple food and logistics costs. On the trade front, April surplus shrank to its lowest since 2020, reducing support from export inflows. Sentiment was further hit by news that major Japanese automakers may shift production to Vietnam, raising concerns over investment, jobs, and factory outlook. Still, the decline was capped by the central bank's hawkish bias, with a total of 100 bps since May, and reports that MSCI delayed its reviews of Indonesia’s market to November.