Rupiah Eases Amid Dollar Strength, Inflation Concerns

Indonesia’s rupiah edged lower, hovering near IDR 17,960 per U.S. dollar on Thursday, the first trading day of October, after briefly touching 17,930 in the prior session. Cautious sentiment reemerged as the dollar index hit an 18-month high and U.S. Treasury yields rose to multi-year peaks, amid concerns that energy-driven inflation could keep policy tighter for longer. Locally, inflation worries deepened after September headline inflation accelerated to 3.28% yoy, a three-month high, due to persistent food-price pressures amid El Niño effects. Elevated crude oil prices added risks for Indonesia, a net oil importer, by raising import costs and fiscal pressure. Still, stronger-than-expected August trade data provided some support even as imports grew much faster than exports. Meanwhile, Bank Indonesia continued to bolster liquidity and safeguard rupiah stability through secondary-market bond purchases and a mix of spot, DNDF and offshore NDF interventions.

The Indonesian rupiah hovered near IDR 17,850 per U.S. dollar on the last trading day of September, rising for a second session after Bank Indonesia emphasised consistent, sustainable interventions and noted its trajectory stayed in line with regional peers. The central bank has shifted its strategy by reducing spot-market interventions to 30% and focusing more on NDFs. Fiscal clarity also improved as Parliament passed the 2027 Budget Bill. Gains were capped, however, as the dollar index stayed firm amid persistent U.S. inflation and hawkish Fed signals. The rupiah is set to log a monthly drop of about 0.6%, weighed by domestic inflation after annual CPI accelerated to 3.19% in August on higher food costs linked to El Niño. External risks also lingered, with elevated crude prices posing fiscal challenges for energy-import-reliant Indonesia. Still, the local currency is on track to strengthen for the quarter, up around 0.6% so far, recovering part of its 5.7% drop in the prior period.

The Indonesian rupiah stayed above IDR 18,000 per U.S. dollar on Tuesday, hovering near its weakest since early August, as a firm dollar weighed on sentiment. The greenback held close to a two-month high on expectations of further Fed tightening, with higher energy prices adding to inflation risks. Domestically, caution lingered ahead of August trade and September inflation data. Annual inflation accelerated to 3.19% in August, lifted by food costs amid El Niño-related supply disruptions. Fiscal and external risks persisted, particularly from elevated crude prices given Indonesia’s reliance on imports. Economists warned that prolonged rupiah weakness could hurt growth by raising costs of imported inputs, energy, and capital goods. Still, the downside was partly limited by Bank Indonesia’s interventions across offshore NDFs, domestic spot, and DNDF markets. The board kept its benchmark rate at 5.75% last week for a third straight month after cumulative 100bp hikes between May and June.