Rupiah Weakens Amid Firm Dollar, Domestic Risks

The Indonesian rupiah slid toward IDR 18,100 per dollar on Tuesday, marking a second day of losses as the greenback stayed firm ahead of the Fed’s policy decision later this week. Domestically, sentiment was unsettled after Governor Perry Warjiyo resigned, with Senior Deputy Destry Damayanti stepping in as acting chief until a permanent successor is named. The leadership change comes at a fragile moment, with fiscal strains, doubts over the government’s agenda, and fading foreign investor confidence weighing on Indonesian assets. Concerns over central bank independence also lingered after President Prabowo appointed his nephew to the BI’s board. Traders now look to the upcoming securities auctions for signals of the central bank’s resolve to aid the rupiah. Last week, the board surprised markets by holding its key rate at 5.75%, despite expectations for another hike following 100bps of tightening since May. The rupiah has lost near 8% this year, ranking among Asia’s weakest currencies.

The Indonesian rupiah slipped to around IDR 17,980 per U.S. dollar on Monday morning after briefly firming near 17,900 in the prior session, pressured by the sudden resignation of Bank Indonesia Governor Perry Warjiyo. President Prabowo had accepted the exit, State Secretariat Minister Prasetyo Hadi said, ahead of market opening. Senior Deputy Governor Destry Damayanti, appointed interim governor, noted Warjiyo departed for personal reasons. Analysts cautioned the move could unsettle investors already concerned about fiscal risks and central bank autonomy. Warjiyo, who began his second five-year term in 2023, had faced mounting pressure to align policy with the government’s growth agenda as the rupiah hit record lows in June. Last week, the board kept its key rate at 5.75%, defying consensus for a further lift following a total of 100bps of hikes since May. Globally, the dollar eased as oil prices fell after a pause in U.S.–Iran hostilities, tempering supply and inflation concerns.

The Indonesian rupiah edged up to around IDR 17,970 per U.S. dollar on Friday afternoon after briefly slipping to IDR 18,030 in the prior session. The rebound was helped by Bank Indonesia's latest measures, including cheaper FX hedging facilities, broader use of local currencies in trade, and tweaks to its liquidity framework to improve liquidity across banks. The moves followed the central bank's decision earlier this week to hold steady its policy rate after a total of 100 bps of hikes since May to defend the rupiah. Even so, the currency stayed on track for a slight weekly loss as crude oil prices climbed above USD 100 a barrel, fueling concerns over Indonesia's fiscal position as a net oil importer. Bank Indonesia also warned that El Niño could lift food prices, although it expects headline inflation to remain within its target range through 2027. Meanwhile, the dollar index hovered near a three-week high as President Trump's latest tariffs reignited fears of a renewed trade war.