BI Support Measures Lift Rupiah But Weekly Loss Still Looms

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.

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.