Rupiah weakens amid high expectations of Fed rate hike
The rupiah weakened on Wednesday’s close, influenced by high expectations that the Federal Reserve (The Fed) will raise interest rates in 2026. The currency fell 29 points, or 0.16 percent, to Rp17,888 per US dollar from the previous close of Rp17,859 per US dollar.
Market analyst Ibrahim Assuaibi noted that expectations for the Fed to potentially increase the pace of rate hikes in 2026 have risen sharply. This is driven by high oil prices amid ongoing supply disruptions in the Gulf, which are fuelling inflation concerns and triggering speculation about higher interest rates for a longer period.
Data from Prime Terminal indicates a 78 percent probability that the Fed will keep rates steady at its meeting next week, while the likelihood of a rate hike in September stands at around 68 percent. The heightened expectations are linked to the continuing military conflict between the US and Iran, now in its eleventh day. Investors are also monitoring Yemen’s Houthi movement, which has threatened a naval blockade against Saudi Arabia in the Red Sea, causing some oil tankers to reroute and raising concerns over exports from one of the world’s largest crude oil suppliers.
The blockade threat emerges as maritime traffic is already disrupted by hostilities around the Strait of Hormuz, a critical global oil transit chokepoint, adding to fears that prolonged disruption could further reduce available supply and increase shipping and insurance costs.
On the domestic front, Bank Indonesia (BI) decided to hold the BI-Rate steady at 5.75 percent. Alongside this decision, BI adjusted the Deposit Facility rate by 25 basis points to 4.75 percent and the Lending Facility rate by 25 basis points to 6.5 percent. The central bank is also expanding incentive policies to encourage foreign capital inflows into the domestic money market to maintain rupiah exchange rate stability. BI aims to strengthen portfolio inflows and deepen the money and foreign exchange markets while enhancing liquidity. The Jakarta Interbank Spot Dollar Rate (JISDOR) remained flat at Rp17,909 per US dollar.