Rupiah Strengthens as BI Prioritises FX Support Measures

The Indonesian rupiah firmed to around IDR 17,890 per U.S. dollar on Thursday, marking a third straight session of gains as the greenback softened further on expectations the Fed may hold rates steady next week after weaker U.S. economic data. Locally, Bank Indonesia surprised markets by keeping its benchmark rate unchanged at 5.75%, opting instead for measures to bolster the currency, such as cheaper foreign-exchange hedging and promoting local-currency use in trade, after a cumulative 100bps of hikes in May and June. Governor Perry Warjiyo said these steps would better attract foreign inflows while stabilising the rupiah without raising borrowing costs. Meanwhile, the government flagged potential cuts to defense spending to boost fiscal health. However, upside for the rupiah was capped by concerns over rising oil prices, which could fuel inflation in the net-importing nation. The central bank also warned that El Niño may pressure food costs after June inflation accelerated to 3.34%.

The Indonesian rupiah remained largely unchanged at around IDR 17,900 per U.S. dollar on Wednesday afternoon after Bank Indonesia unexpectedly kept its benchmark interest rate unchanged at 5.75%, as policymakers assessed the impact of earlier tightening measures. The decision marked a pause after a cumulative 100bps of rate hikes in May and June aimed at supporting the currency and containing inflationary pressures. Despite the aggressive tightening cycle, the rupiah stayed under pressure against the dollar after losing roughly 7% so far this year. External headwinds persisted, with renewed U.S.-Iran hostilities and threats to shipping through the Strait of Hormuz fueling concerns over energy supplies and higher oil prices. For Indonesia, a net oil importer, rising crude prices could widen the import bill, increase energy subsidy costs, and add to price pressures. Meanwhile, the U.S. dollar index remained firm, limiting gains in regional currencies.

The Indonesian rupiah extended gains for a second day, hovering around IDR 17,900 per U.S. dollar on Wednesday despite broad dollar strength, as markets awaited Bank Indonesia’s policy decision. The central bank is widely expected to lift its key interest rate by 25bps to 6.0% after a cumulative 100bps of tightening in May–June to shore up the currency. In the meantime, Finance Minister Purbaya Yudhi stressed Indonesia’s fiscal resilience, citing a stable sovereign outlook and manageable deficit, while authorities intensified inflation-control efforts after June’s reading hit the upper end of Bank Indonesia’s 1-1/2%–3-1/2% target, including food price stabilisation. However, rupiah gains were tempered by concerns over higher crude costs straining the budget of the net oil-importing nation. Investor sentiment also remained fragile, underscored by Indonesia’s slide to the bottom of the ASEAN-6 in the 2026 World Competitiveness Ranking and heavy foreign capital outflows earlier this year.