Rupiah Faces Headwinds Despite Partial Recovery

The Indonesian rupiah weakened to IDR 18,185 per U.S. dollar on Thursday before recovering to around IDR 18,120 as Bank Indonesia reiterated its commitment to support the currency through NDF, DNDF, and spot interventions, alongside government bond purchases in the secondary market. Meanwhile, the dollar index held on to losses after the Federal Reserve kept interest rates unchanged as widely expected. Broader sentiment remained fragile amid domestic and external pressures. Indonesia’s 10-year government bond yield reached 7.7% on Tuesday, its highest in four years and above the 2026 budget assumption of 6.9%, reflecting concerns over fiscal risks and inflation alongside elevated U.S. yields. Persistent foreign selling added further strain amid uncertainty over Indonesia’s MSCI market status, with a potential downgrade to standalone status next year raising concerns over capital outflows. Traders now brace for key releases next week, including September trade and October inflation.

The Indonesian rupiah remained under pressure, hovering around IDR 18,170 per U.S. dollar on Wednesday and approaching its July record low of IDR 12,820. A firm dollar index ahead of the Fed’s rate decision weighed on the currency, alongside concerns over potential foreign fund outflows amid uncertainty about Indonesia’s MSCI status. Fiscal worries added to the strain as the government considers free education through university, potentially stretching the budget alongside other costly commitments. External risks persisted despite a recent trade surplus, with elevated imports and energy costs leaving the economy vulnerable to Middle East tensions. Annual inflation accelerated to 3.28% in September, a three-month high, amid food-price pressures linked to El Niño. Meanwhile, Bank Indonesia said the rupiah’s movements were in line with regional peers and reaffirmed its market interventions to aid the currency. Traders now eye next week’s trade data and inflation figures for fresh signals.

The Indonesian rupiah remained above IDR 18,100 per U.S. dollar on Tuesday, hovering near its weakest level since late July as the dollar stayed firm ahead of the Fed’s upcoming policy decision. Locally, fiscal concerns added to pressure amid elevated oil prices and the government’s proposal to make education free from primary school through university, potentially adding to budget strains from free school meals and other costly commitments. Inflation risks also mounted, as September figures accelerated to a three-month high of 3.28%, reflecting rising food prices linked to El Niño. Meanwhile, Bank Indonesia Governor Destry Damayanti said the central bank would maintain its intervention strategy despite heightened volatility amid escalating Middle East tensions. She added that BI stayed active in the market, describing recent currency movements as part of normal market dynamics. A central bank official also said rupiah fluctuations remained manageable and within BI’s tolerance limits.