Rupiah weakens as US inflation risks increase

The Rupiah exchange rate closed lower at Rp17,668 per US Dollar from its previous level of Rp1t5,597 per US Dollar. Currency and commodity economist Ibrahim Assuaibi stated that the Rupiah’s weakness is influenced by increasing US inflation risks driven by high oil prices. This has heightened expectations that the Federal Reserve (Fed) may maintain high interest rates for a longer period.

“The prospect of tight monetary policy from the Fed is strengthening because higher energy prices have clearly slowed disinflation progress, pushing inflation further away from the Fed’s 2 percent target,” he said in a written statement in Jakarta on Monday. Furthermore, efforts to end the US-Israel-Iran conflict appear to have stalled following an attack on a nuclear power plant in the United Arab Emirates and expectations that US President Donald Trump will discuss military options against Iran.

Talks last week between Trump and Chinese President Xi Jinping were assessed to have ended without indications of resolving the US-Iran conflict. Drone attacks in the UAE and Saudi Arabia, alongside rhetoric from the US and Iran, have raised concerns regarding conflict escalation. UAE officials stated they are investigating the source of the attack on the Barakah nuclear power plant and asserted that the UAE has the full right to respond to such “terrorist attacks.”

Regarding domestic sentiment, the market was reportedly startled by statements from Indonesian President Prabowo Subianto, who noted that most people in regional areas do not use US Dollars in their daily activities, meaning the impact is not felt as directly. The Jakarta Interbank Spot Dollar Rate (JISDOR) from Bank Indonesia also moved weaker to the level of Rp17,666 per US Dollar from the previous Rp17,496 per US Dollar.