Rupiah Continues to Weaken, LPEM UI: Monetary Instruments Are No Longer Sufficient

Jakarta — The depreciation of the rupiah is seen as increasingly difficult to control by monetary instruments alone. The Institute for Economic and Social Research (LPEM) of the Faculty of Economics and Business at the University of Indonesia (LPEM FEB UI) says that pressures on the rupiah are now more driven by fiscal and structural factors than by external shocks. This view comes amid Bank Indonesia’s move to raise the policy rate, or BI Rate, to 5.25 percent to maintain exchange-rate stability and to dampen pressures in the domestic financial market. ‘Following a series of capital outflows in recent weeks, the rupiah has continued its weakening trend,’ LPEM FEB UI wrote in its report, quoted on Friday (22 May 2026). Year-to-date performance, the rupiah has lagged behind most developing-country currencies. LPEM FEB UI notes that during the year the rupiah has weakened by 5.50 percent. The performance is only better than the Turkish Lira and the Indian Rupee. While global pressures remain an important factor, LPEM FEB UI says the rupiah’s weakness this time cannot be detached from domestic conditions. ‘Although external factors influencing rupiah depreciation cannot be denied, as seen in the exchange rates of various developing countries, domestic factors also have a significant influence on the rupiah’s depreciation,’ the institute said. LPEM FEB UI notes that in August 2025 the rupiah was in the Rp 16,100 per US dollar range. Since then, the rupiah has continued to weaken consistently. According to LPEM FEB UI, there are several domestic factors triggering prolonged pressure on the rupiah. These factors include investor concerns about the fiscal balance due to the low tax ratio, populist programmes deemed fiscally costly, and the risk of contingent liabilities from Danantara. Additionally, high policy uncertainty is cited as a concern by the market.