Economist: Rupiah's Record Weakness Signals Dual Pressures on Indonesian Economy

University of Airlangga Economics Professor Rahma Gafmi said: “This depreciation is not merely a numbers issue but a signal that Indonesia’s economy is under dual pressures—persistent global monetary pressures and domestic structural challenges in energy and fiscal policy being tested by the market.” The rupiah has breached new psychological levels of around Rp17,700-17,800 per US dollar. Despite a 50 basis point increase in the benchmark interest rate (BI-Rate) to 5.25% to stabilise the currency, she noted that the rupiah’s continued weakness signals that domestic assets are being tested by the strong safe-haven appeal. According to Rahma, the depreciation carries deeper implications beyond mere fluctuations, indicating a persistent ‘higher for much longer’ dominance. The US Dollar Index (DXY) strengthening to 99.10 and rising US Treasury yields indicate investors believe US interest rates will remain elevated for much longer. She added that this signals tightening foreign currency supply, with key concerns including dollar requirements for foreign debt repayments and dividend repatriation, which typically peak in the second quarter. Rising global oil prices due to Middle Eastern geopolitical tensions have increased dollar demand for energy imports, such as Pertamina’s needs, adding pressure on foreign reserves and the rupiah’s exchange rate. Recent escalations in US-Iran tensions, including attacks on US military bases in Kuwait, could push oil prices higher and exacerbate pressure on the rupiah. Rahma noted that the rupiah’s depreciation alongside the Indonesian Composite Stock Index (IHSG) falling below 7,000 signals investors are adopting defensive measures. She also observed strong expectations of imported inflation, with the rupiah’s weakness raising costs for industrial raw materials, which are predominantly imported. This signals potential upward pressure on consumer inflation, ultimately eroding purchasing power. Rahma also observed that the rupiah’s record depreciation signals that interest rate tools alone are no longer sufficient.