BI and Government Urged to Align Policies to Stabilise Rupiah

Bank Indonesia (BI) has taken more aggressive steps to stabilise the rupiah amid growing global pressures, but these efforts are deemed inadequate without synchronised fiscal and monetary policies. On Thursday (28 May), the rupiah weakened by 54 points to Rp17,855 against the US dollar.

Trimegah Securities Indonesia Chief Economist Fakhrul Fulvian noted BI’s recent actions are more progressive than before, with a 50 basis point rate hike crucial for restoring market credibility and exchange rate stability.

“BI is returning to a pre-emptive, front-loaded, ahead-of-the-curve approach akin to 2018,” he stated on Thursday.

He stressed that exchange rate stability is as vital as inflation control, warning that prolonged rupiah depreciation without strong anchors could spill over into multiple economic sectors.

“Central banks sometimes need to act before inflation fully materialises,” Fakhrul said.

He argued that pressure on the rupiah cannot be solely shouldered by BI; a balanced policy mix between monetary and fiscal measures is needed to ease financial market pressures.

“If BI tightens policy but fiscal stance and communication remain unsynchronised, rupiah pressure will persist,” he added.

Fakhrul highlighted the need for aligned policies between government and BI amid increasingly complex global pressures, stating: “Markets want balanced burden-sharing—don’t let the rupiah and BI bear all the pressure.”

He also criticised sudden policy communications during poor market sentiment, which heighten uncertainty.

Fakhrul noted the world is entering a new era of structural inflation, high energy costs, geopolitical fragmentation, and complex supply chains, urging Indonesia to adapt fiscal policies to the changing global economic landscape.

“Markets need a clear and credible adjustment roadmap,” he concluded.

The rupiah is expected to remain under pressure, potentially reaching Rp18,000 per US dollar in the near term. Recent closure at Rp17,796 per dollar due to US-Iran tensions has raised concerns over potential job losses in industry. Finance Minister Purbaya Yudhi Sadewa affirmed the state budget remains resilient despite the rupiah weakening to Rp17,830 per dollar, with worst-case scenarios prepared.