Rupiah set to hit Rp18,000 per US dollar as pressure mounts

The rupiah is expected to remain under pressure and is likely to reach Rp18,000 per US dollar in the near term. Currency and commodities analyst Ibrahim Assuaibi attributes the rupiah’s weakening to a combination of external and internal factors exerting significant pressure on domestic financial markets. On Thursday (28 May), the rupiah weakened by around 70 points to Rp17,870 per US dollar. Assuaibi said the pressure continues amid rising global uncertainty. ‘There is a possibility that the rupiah will approach Rp18,000 per US dollar when markets open on Friday,’ he stated. Externally, Assuaibi highlighted rising geopolitical tensions in the Middle East. He said the conflict involving the US and Iran could worsen regional security, including global energy trade routes. He noted US strikes on facilities in southern Iran, which could provoke Iranian retaliation. The situation has further escalated following threats against Oman, perceived as supporting Iran-US peace talks. ‘On the other hand, the US is reportedly preparing a major war with Iran based on Russian intelligence,’ he added. Assuaibi also warned that Middle East tensions could disrupt the Strait of Hormuz, a key global oil transit route, potentially driving up international oil prices. He noted global oil prices have risen above $92 per barrel, with West Texas Intermediate (WTI) reaching $96. Higher oil prices are expected to increase logistics costs and fuel global inflation, particularly in the US. ‘This will not only affect the US but also cause significant global inflation,’ he added. Beyond the Middle East, Assuaibi highlighted rising geopolitical tensions in Eastern Europe due to the Russia-Ukraine conflict, which he said is amplifying market concerns over global economic uncertainty. On monetary policy, Assuaibi said markets are focused on the US Federal Reserve’s direction. He referenced Minneapolis Fed President Neel Kashkari’s statement on Wednesday (27 May) that inflation remains the Fed’s primary concern over labour market weakness. According to Assuaibi, this has led to expectations that the Fed will keep rates high for longer, with a possible further rate hike before year-end. This sentiment is strengthening the US dollar in global markets. Domestically, Assuaibi cited high demand for US dollars for oil imports, dividend payments, and maturing debt as key factors. He also pointed to domestic policies causing investor concerns, including suboptimal management of the Free Nutrition Programme (MBG) and Merah Putih Cooperative, which have spooked market participants. ‘This has led to significant foreign capital outflows during the extended holiday period,’ he said. Assuaibi said Bank Indonesia is continuing interventions to stabilise the rupiah, but strong external and internal pressures limit its room for appreciation. ‘It is natural for the rupiah to weaken. We expect it to depreciate to around Rp17,900 per US dollar today,’ he concluded. (E-3)