Rupiah Potentially Weakens to Rp 17,040 per US Dollar, Here Are the Culprits

The rupiah exchange rate is expected to weaken again during trading on Tuesday (31/3/2026), after the Garuda currency closed depreciated at Rp 17,002 per US dollar on Monday. Currency and Commodities Analyst, Ibrahim Assuaibi, projects the rupiah’s movement to be fluctuating but potentially closing weaker in the range of Rp 17,000 to Rp 17,040 per US dollar. “For tomorrow’s trading (Tuesday), the rupiah will be fluctuating but close weaker in the range of Rp 17,000 - Rp 17,040 (per US dollar),” said Ibrahim to reporters on Monday afternoon. According to him, the market is still gripped by concerns over the potential escalation of the Iran conflict following attacks by the Tehran-backed Houthi group based in Yemen against Israel over the weekend. These attacks are seen as potentially opening a new front in the Middle East conflict, particularly because the Houthi group has the capability to disrupt strategic shipping lanes in the Red Sea, which is one of the important global trade routes. “The market remains vigilant against the potential escalation of the Iran war after the Houthi group based in Yemen, supported by Iran, attacked Israel over the weekend. The Houthi group could open a new front in the war, given their ability to launch attacks in the Red Sea,” he explained. “Trump last week extended the deadline for attacks on Iran’s energy infrastructure until early April. Iran has largely rejected the idea of direct talks with the US since the war began at the end of February,” Ibrahim continued. On the economic data front, market sentiment is also pressured by the worsening consumer confidence in the United States. University of Michigan data shows the Consumer Sentiment Index for March fell from 55.5 to 53.3, below market expectations. In addition, short-term inflation expectations rose from 3.4 percent to 3.8 percent, reflecting concerns over persistent high price pressures, particularly due to rising energy prices. These external pressures are further weighing on the rupiah’s movement, especially amid domestic conditions that also face fiscal challenges. From the internal side, Ibrahim assesses that the government’s plan to implement budget efficiency needs to be balanced with other policies to effectively keep the State Revenue and Expenditure Budget (APBN) deficit in check. He views the current fiscal pressures as structural, stemming from energy subsidies, rising debt interest costs, and priority spending needs. Therefore, budget efficiency policies cannot stand alone to keep the deficit under control, requiring a combination of policies. Moreover, even absorption of the budget throughout the year is an important factor. If efficiency only results in savings without increasing economic output, the impact could be contractionary. For this reason, the government needs to combine efficiency policies with increasing state revenues, outcome-based spending reprioritisation, and credible financing management. Without such steps, budget efficiency is seen as only a short-term solution, while pressure on the deficit could increase in the second half of the year.