Why the Rupiah Exchange Rate Risks Breaking Through 20,000 per US Dollar
The Political Economy and Policy Studies (PEPS) organisation assesses that the rupiah exchange rate is in a vulnerable condition amid rising global geopolitical tensions, particularly the conflict in Iran. In its analysis, PEPS Managing Director Anthony Budiawan states that the rupiah’s weakening to around 20,000 per US dollar is no longer mere speculation but a scenario grounded in historical experience.
“Indonesia is lulled by the narrative that its economy is strong, with large foreign exchange reserves exceeding US$150 billion,” Anthony said in a written statement on Monday, 23 March 2026.
He views the narrative portraying Indonesia’s economy as robust, supported by foreign exchange reserves above US$150 billion and a relatively safe debt structure, as not fully reflecting the fundamental conditions. This is because, from fiscal, monetary, and exchange rate perspectives, there is vulnerability to external shocks.
He states that Indonesia’s economy is highly sensitive to global pressures, especially those stemming from geopolitical factors. The conflict in the Middle East could disrupt global energy supplies, leading to rising oil prices and pressure on Indonesia’s external balance. This situation, he continues, could trigger capital outflows from emerging markets to safer assets.
Anthony also highlights the composition of Indonesia’s foreign exchange reserves, which he deems not fully reflective of real strength. A portion of these reserves comes from the accumulation of foreign debt by both the government and the central bank, used to maintain exchange rate stability through market interventions.
According to him, this pattern has limitations; at a certain point, the rupiah will experience a sharp correction. He refers to three episodes of pressure on the rupiah in the last decade. During the period from September 2014 to September 2015, foreign exchange reserves fell by around US$9.44 billion, while the rupiah weakened by about 20 per cent. The government at the time responded by issuing global bonds to mitigate the pressure.
Similar pressure occurred again in 2018, when foreign exchange reserves shrank more deeply by around US$17.13 billion and the rupiah depreciated by about 13.5 per cent. To stem the weakening, the government increased foreign debt issuance in various instruments, including global bonds and sukuk.
The sharpest episode, he says, occurred at the start of the Covid-19 pandemic in 2020. Within about one month, foreign exchange reserves dropped by around US$10.7 billion and the rupiah weakened by about 20 per cent. The government again relied on issuing global bonds to stabilise the market.
From these three periods, Anthony concludes that the rupiah’s stability heavily depends on the continuation of external fund flows. Large foreign exchange reserves do not automatically guarantee exchange rate stability.
He also highlights a long-term trend showing a contradiction: foreign exchange reserves increased from around US$100 billion in 2014 to around US$150 billion in early 2026, yet the rupiah has weakened from around Rp12,000 to about Rp17,000 per US dollar.
In the first two months of 2026, Anthony notes that foreign exchange reserves have fallen by around US$4.6 billion, even though the government drew down around US$7.1 billion in foreign debt in various currencies.
If the pressure trend continues, compounded by the impact of the Iran conflict, he forecasts a rupiah depreciation of 15-20 per cent as highly likely. With the current position around Rp17,000 per US dollar, such weakening could bring the rupiah to around Rp20,400 per US dollar.
In a more extreme scenario, Anthony mentions that weakening could exceed 20 per cent in a relatively short time, namely three to six months. He warns of the 1997 crisis experience, when sharp rupiah depreciation triggered a broader crisis due to delayed policy responses.