Rupiah strengthens as Indonesia's fiscal prospects improve

The rupiah exchange rate strengthened by 3 points, or 0.02 percent, to Rp17,941 per US dollar on Thursday morning, compared to the previous close of Rp17,944 per US dollar. Permata Bank Chief Economist Josua Pardede assessed that the rupiah’s strengthening came as concerns over Indonesia’s fiscal prospects receded. “Concerns over Indonesia’s fiscal prospects have eased alongside the weakening of global oil prices, while the government’s decision to adjust Pertamax fuel prices has further reduced pressure on the fiscal balance,” he told ANTARA in Jakarta on Thursday. This development is seen as reinforcing expectations that the fiscal deficit will be more manageable, thereby providing support for the rupiah and the domestic bond market. The rupiah also continues to benefit from the increasingly strong transmission of Bank Indonesia’s interest rate hike policy announced the previous day, as the decision enhances the yield attractiveness of domestic assets. Looking at global sentiment, headline US inflation rose to 4.2 percent year on year in May 2026, in line with market expectations and higher than the previous month’s realisation of 3.8 percent year on year. According to him, this increase marks an acceleration in headline inflation for three consecutive months, primarily driven by a 23.5 percent year-on-year surge in energy prices amid ongoing tensions in the Middle East. However, on a monthly basis, headline inflation slowed to 0.5 percent month on month from 0.6 percent month on month in the previous month, in line with market consensus. Meanwhile, core inflation only edged up to 2.9 percent year on year from 2.8 percent year on year previously. On a monthly basis, core inflation even slowed to 0.2 percent month on month from 0.4 percent month on month, lower than the market expectation of 0.3 percent month on month. “The data indicates that inflationary pressures stemming from rising energy prices on the overall price level are not as strong as previously feared. Therefore, investors have slightly reduced expectations for a Fed rate hike this year, although a 25-basis-point rate hike in December 2026 is still fully priced in,” he stated. Based on these factors, the rupiah is expected to move within the range of Rp17,900 to Rp18,000 per US dollar.