Rupiah on Track for 3rd Consecutive Weekly Rise

The Indonesian rupiah strengthened to around IDR 17,720 per U.S. dollar on Friday, extending its recent gain and heading for its third successive weekly advance, as the dollar index lingered near multi-month lows amid doubts over the U.S. Treasury’s bond buyback plan. Locally, sentiment was buoyed by robust loan growth, which accelerated to 13.58% yoy in July, surpassing Bank Indonesia’s 8–12% target for end-2026. Meanwhile, at its first policy meeting under acting Governor Destry Damayanti, the central bank reaffirmed its commitment to currency stability, holding the benchmark rate at 5.75% for a second month after 100bps of hikes since May. However, gains were capped by external risks, with fresh data showing a record current account deficit in Q2, reflecting a narrowing trade surplus due to a surge in oil imports linked to the Middle East war. Potential El Niño-driven food inflation also underscored lingering cost pressures, even as July headline inflation hit a three-month low.

The Indonesian rupiah strengthened to below IDR 17,800 per U.S. dollar on Thursday, extending recent gains as the dollar index hovered near a three-month low. The greenback remained under pressure after the U.S. unveiled measures to contain long-term borrowing costs, including expanded bond buybacks. Domestically, Bank Indonesia reaffirmed its focus on currency stability at its first policy meeting under acting Governor Destry Damayanti, following Perry Warjiyo’s abrupt exit. As expected, the central bank held its key rate at 5.75% for a second month, signaling policy continuity after a total 100bp hike since May. Officials stressed the policy mix would prioritise rupiah stability and guard against imported inflation, while liquidity tools would support growth. The rupiah has gained about 0.4% this week, adding to strength from the prior two weeks, though upside remains capped by caution ahead of Q2 current account data, after Q1’s deficit hit its largest since 2019 on weaker trade.

The Indonesian rupiah was largely unchanged on Wednesday afternoon, hovering just below IDR 17,850 per U.S. dollar after Bank Indonesia kept its key rate unchanged at 5.75% for a second straight month, in line with expectations. It was the first policy decision under acting Governor Destry Damayanti, who assumed the role following Perry Warjiyo’s abrupt departure last month. So far this year, BI has lifted rates by a cumulative 100bps to bolster the currency and investor confidence. Destry emphasised that the pause reflects efforts to balance currency stability, inflation control, and growth. She also noted that forex reserves remain more than enough to safeguard the rupiah. In the near term, the central bank is expected to lean more on its broader toolkit, forex intervention and high-yielding central bank securities, rather than rate moves alone. Globally, the U.S. dollar index eased, with investors awaiting the Fed's July meeting minutes for clues on the policy outlook.