Rupiah weakens amid Fed rate hike expectations

JAKARTA – The Indonesian rupiah weakened against the US dollar despite falling oil prices, closing at Rp17,744 per US dollar, down 27 points or 0.15% from the previous close of Rp17,717.

Money market analyst Ibrahim Assuaibi attributed the rupiah’s weakness to expectations of Federal Reserve rate hikes. ‘One of the US Federal Reserve governors, Christopher Waller, stated that if inflation expectations deviate from the target, he would not hesitate to support a rate hike. Waller is likely to align with other officials in raising rates,’ he said in a recorded statement in Jakarta on Monday.

Federal Reserve Chair Kevin Warsh is also seen as likely to raise rates if inflation remains high, despite US President Donald Trump not calling for rate cuts at present. This suggests rates may stay elevated until the end of 2026.

Markets are also awaiting US Q1 2026 GDP data, housing figures, the Fed’s preferred inflation indicator, and the core Personal Consumption Expenditures (PCE) index.

Additional sentiment stems from market optimism over a potential US-Iran peace deal, despite ongoing disputes over the Strait of Hormuz. ‘We must remember whether this agreement will be signed or not, as the more important issues are uranium and the frozen funds from the 1970s. This makes the peace deal likely to fail completely,’ he added.

Domestic sentiment, he added, remains weighed down by the fiscal deficit, which continues to unsettle markets.

The Bank Indonesia Jakarta Interbank Spot Dollar Rate (JISDOR) also weakened to Rp17,743 per US dollar today from Rp17,717.