Rupiah Under Pressure, Middle Class and the State Budget Also Affected
The rupiah’s exchange rate continued to be pressured higher amid intensifying global geopolitical tensions and rising global economic uncertainty. The rupiah briefly weakened to a record low, piercing Rp 17,700 per US dollar. On Thursday, 21 May 2026, the rupiah stood at Rp 17,686 per US dollar. The rupiah strengthened after Bank Indonesia (BI) raised the BI Rate by 50 basis points to 5.25 percent on Wednesday, 20 May 2026.
Rising import prices, increased pressure on the state budget, and a decline in household purchasing power are effects that are starting to be felt.
UGM economist Rijadh Djatu Winardi from the Faculty of Economics and Business at Universitas Gadjah Mada said the rupiah’s weakness at present results from the accumulation of various global and domestic pressures arriving simultaneously. He termed this condition a ‘perfect storm’ that magnifies the rupiah’s pressure.
Domestically, there are seasonal and structural factors that also worsen the rupiah’s pressure. One such factor is the dividend payout period to foreign investors, which routinely increases demand for foreign exchange. In addition, rising market concerns about the government’s increasingly constrained fiscal space are also seen as driving up perceptions of risk to the Indonesian economy.
“The combination of global and domestic factors is what makes the rupiah’s weakness feel sharper,” he said.
According to Perry, the domestic economic fundamentals remain relatively strong. This is reflected in Indonesia’s first-quarter 2026 economic growth of 5.61 percent and an annual inflation rate of 2.42 percent. “The current exchange rate is undervalued. Undervalued and going forward we believe it will stabilise and strengthen. Why undervalued? Our fundamentals are strong,” Perry said at a press conference of the Financial System Stability Committee (KSSK) at Istana Merdeka, Jakarta, on Tuesday (5 May 2026).
BI notes that the rupiah has weakened by 3.65 percent since rising geopolitical tensions in the Middle East.
To safeguard rupiah stability, BI has prepared seven policy steps that have also received approval from President Prabowo Subianto.
“We reported to the President and the President approved and then provided seven important strengthening steps that BI has taken to make the rupiah strong, to stabilise the rupiah going forward,” Perry said.
The first step involves intervention in the foreign exchange market, via spot transactions and Domestic Non-Deliverable Forward (DNDF) instruments domestically, and Non-Deliverable Forwards (NDF) in offshore markets such as Hong Kong, Singapore, London, and New York.
“That is our coordination with the Minister of Finance, ensuring inflows from foreign portfolio investments remain year to date and continue to reinforce the rupiah,” Perry added.
The third step is BI continuing to buy government securities (SBN) on the secondary market as part of fiscal-monetary policy synergy. To date, BI’s SBN purchases have reached Rp 123.1 trillion year to date.
The fourth step sees BI, together with the government, maintaining adequate liquidity in the banking system and money market, reflected in a 14.1 percent growth in the monetary base.
“Inside the country, the market for the Chinese yuan and the rupiah has developed domestically. Because our local currency and the yuan are closely linked, and a domestic yuan–rupiah market is forming, this diversifies away from the dollar and can strengthen the rupiah,” he added.
The sixth step involves stronger offshore interventions using the NDF instrument, engaging domestic banks to boost foreign exchange supply.
The seventh step is BI increasing supervision of banking and corporate activity with high demand for US dollars.