Rupiah Falls as Profit-Taking and External Risks Weigh

The Indonesian rupiah slipped to around IDR 17,700 per U.S. dollar on Monday, reversing gains in the prior three sessions as traders took profits after the currency reached a near ten-week high last week. Sentiment was also weighed by concerns that Indonesia’s current account position could remain under pressure in the near term amid elevated oil prices, firm oil import growth, and weaker exports. In Q2, the current account deficit hit a record USD 12.5 billion, signaling a deterioration in the country’s external balance. Meanwhile, inflation risks lingered as potential El Niño effects loomed, though July headline inflation eased to a three-month low. Still, losses were cushioned by a softer dollar after surging U.S. Treasury yields heightened concerns over Washington’s debt burden. Acting Bank Indonesia Governor Destry Damayanti recently reaffirmed policymakers’ commitment to rupiah stability, holding the policy rate at 5.75% for a second month following 100bps of hikes since May.

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.