Rupiah Approaches Rp18,000 per US Dollar as Global and Domestic Pressures Mount
The Indonesian Rupiah and the stock market have come under intense scrutiny following a period of significant depreciation and sharp corrections. On Wednesday, the Rupiah traded in the range of Rp17,900 to Rp17,966 per US Dollar, reflecting a combination of global and domestic pressures weighing on the national economy.
Yusuf Rendy Manilet, a researcher at the Centre of Reform on Economics (CORE) Indonesia, noted that the Rupiah recently touched the Rp17,925 level, marking one of its weakest points in history against the US currency. He suggested that the projection of the Rupiah approaching the Rp18,000 level is not an exaggeration.
According to Manilet, the weakness cannot be attributed solely to domestic factors. The global strengthening of the US Dollar persists amidst rising uncertainty caused by conflicts in the Middle East, alongside expectations that the Federal Reserve may further tighten monetary policy towards the end of the year. These conditions have prompted global investors to shift funds into safer assets, exerting pressure on emerging market currencies, including Indonesia’s.
However, Manilet highlighted that not all Rupiah depreciation stems from external sources. He pointed out that several Asian currencies, such as the South Korean Won, Japanese Yen, and Singapore Dollar, managed to strengthen slightly against the US Dollar during the same period, indicating that domestic pressures are also playing a role.
To maintain exchange rate stability, Bank Indonesia and the government have implemented several measures. Bank Indonesia raised its benchmark interest rate by 5_0 basis points in May, and the government introduced Export Proceeds Foreign Exchange (DHE) regulations on 1 June, requiring natural resource exporters to deposit their export proceeds within the country. While these policies are intended to increase the domestic supply of foreign exchange, their impact may not be immediate as it takes time for these funds to circulate within the national financial system.
In the short term, the most realistic approach is to maintain market stability through measured interventions in the foreign exchange and bond markets using foreign exchange reserves. The goal is not to defend a specific rate but to dampen excessive volatility to prevent panic. Manilet warned that large-scale use of reserves to defend psychological levels can be costly and ineffective against strong market pressures.
He further noted that the Rupiah issue remains structural. As long as Indonesia relies on short-term foreign capital inflows and lacks stable sources of foreign exchange, global volatility will continue to impact the exchange rate. Therefore, coordinated fiscal and monetary policies, improved export structures, and increased long-term direct investment are essential.
The pressure on the foreign exchange market is also reflected in the equity market. During the first session on Wednesday, the Jakarta Composite Index (IHSG) plummeted 4.94% to the 5,889 level, hitting its lowest point since May 2021. Manilet stated that the Rupiah’s weakness has driven sell-offs in the stock market, as depreciating currency makes Rupiah-based assets less attractive to foreign investors, particularly in large-cap stocks. However, he added that the IHSG’s sharp correction was also partially driven by the MSCI index rebalancing process effective from 1 June, suggesting that the market decline does not entirely reflect a deterioration in Indonesia’s economic fundamentals.