Rupiah Softens as BI Policy Meeting Kicks Off

The Indonesian rupiah edged lower to around IDR 17,850 per U.S. dollar on Tuesday, following a muted session the prior day. Sentiment remained cautious as Bank Indonesia began its two-day policy meeting, with the interest rate decision due Wednesday. The central bank is widely expected to keep its policy rate unchanged under acting Governor Destry Damayanti, following a cumulative 100bps of hikes between May and June to support the rupiah. Focus also vigilantly shifted to the upcoming Q2 current account data later this week, after Q1 deficit reaching its widest level since 2019 amid weaker trade performance. Still, weakness was partly cushioned by fiscal optimism after President Prabowo projected resilient GDP growth next year, while the government vowed to build a fiscal buffer and bolster investor confidence. Externally, the dollar index slipped to a near two-month low as traders pared back expectations for further Fed tightening this year amid softer U.S. economic data.

The Indonesian rupiah firmed further, hovering just below IDR 17,800 per U.S. dollar around midday Monday in thin holiday trading as markets observed Independence Day. Meanwhile, the dollar index extended its recent decline after softer U.S. data reinforced expectations the Fed may ease policy rather than keep rates higher for longer. Locally, sentiment was supported by continuity prospects under acting Governor Destry Damayanti, the sole nominee to lead Bank Indonesia. The central bank will begin its first policy meeting Tuesday, the first time since Perry Warjiyo’s departure last month. BI had raised rates by 100bps in May and June to help the rupiah. Meantime, forex reserves stayed broadly stable in July, underscoring resilient external buffers. Fiscal optimism also lent support after President Prabowo said that GDP growth could reach 6% next year, with pledges to build a fiscal buffer and accelerate debt reduction, potentially improving credibility in Indonesia’s fiscal position.

The Indonesian rupiah edged higher to around IDR 17,830 per U.S. dollar around midday Friday, ending a three-session losing streak and heading for a second straight weekly advance. Sentiment was lifted by President Prabowo’s Independence Day address to parliament, in which he projected GDP growth could reach 6% by next year, citing continued investment realisation and job creation. The government also plans to reclaim part of state-owned companies’ dividends to build a fiscal buffer and accelerate debt reduction, potentially strengthening fiscal credibility. Focus now turns to Bank Indonesia’s policy meeting next week, its first since Perry Warjiyo stepped down last month. Acting Governor Destry Damayanti, now the sole nominee to lead BI, is expected to provide policy continuity. BI has raised its policy rate by 100bps since May to support the rupiah. Globally, the dollar remained subdued as softer U.S. inflation data prompted traders to scale back bets on a Fed rate hike in September.