Rupiah Weakens After Iran War, But Many Are Worse Off

Geopolitical turbulence is once again testing emerging markets, particularly in the currency arena. Since the Middle East war erupted at the end of February 2026, capital outflows from emerging markets have intensified, the US dollar has strengthened, and riskier currencies have come under pressure. The rupiah has weakened accordingly, but the extent remains more subdued than many of its peers. Citing Bank Indonesia data from late February to 6 April 2026, the rupiah depreciated by 1.91% to a spot rate of 17,042 per US dollar. This figure is better than the South Korean won’s 5.0% drop, the Thai baht’s 4.0%, the Indian rupee’s 3.6%, the Turkish lira’s 3.5%, the South African rand’s 2.3%, and the Philippine peso’s 2.3%. This means pressure is indeed mounting on Indonesia, but investors have not yet categorised the rupiah among the most vulnerable. The market continues to differentiate between countries with relatively sound fundamentals and those with greater external vulnerabilities. For the year to date in 2026, the rupiah’s weakening stands at 2.39%. Once again, its position is stronger than several key Asian peers, particularly the Indian rupee and South Korean won. This is significant as both are typically regarded as large and liquid markets in the region. There are several reasons why the rupiah is holding up. First, domestic inflation is beginning to ease. March 2026 inflation was recorded at 3.48% year-on-year, down from 4.76% in February. Second, Bank Indonesia remains active in maintaining stability in the foreign exchange and bond markets. Third, Indonesia’s domestic demand continues to support economic growth.