Budget Deficit Threats Push Rupiah Closer to Record Low

JAKARTA - The rupiah closed 35 rupiah lower at Rp17,880 per US dollar on Friday (29 May 2026), a 0.20% decline. Earlier in the session, the currency touched 17,893 per US dollar, a drop of 48 rupiah (0.27%).

Currency and Commodities Analyst Ibrahim Assuaibi said pressure on the rupiah stems from external and domestic factors, prompting investors to reduce exposure to emerging market assets, including Indonesia. This has led to capital outflows from emerging markets as investors shift funds to lower-risk US instruments such as government bonds, which offer more attractive yields.

In addition to US interest rates, the country’s budget outlook and spending are also concerns for the market. Global credit rating agencies, including S&P Global, Moody’s, and Fitch Ratings, are concerned about the potential widening of the budget deficit.

Rising global oil prices are adding further pressure on the rupiah. Higher energy prices increase the cost of importing oil and its derivatives, raising the demand for foreign currency, particularly US dollars, to cover import payments. This dynamic could reduce Indonesia’s trade surplus.

Additionally, seasonal demand for US dollars is affecting the rupiah’s movement. Corporate needs for dividend payments, routine import obligations, and other foreign currency transactions are maintaining high demand for US dollars in the domestic market.

“Recent rupiah weakness has coincided with pressure in equity and bond markets, including MSCI sentiment, fiscal deficit concerns, and rising yields on government bonds (SBN),” said Ibrahim.