The Indonesian rupiah weakened to a new low of around IDR 18,150 per U.S. dollar on Monday, extending losses for a fifth straight session amid a stronger greenback. The move followed robust U.S. labor market data that reinforced expectations of a Federal Reserve interest rate hike later this year.
Domestic pressures amplified the currency’s decline. Indonesia’s foreign exchange reserves fell for a fifth consecutive month in May, hitting their lowest level since June 2024 due to sustained market intervention. Investors largely shrugged off assurances from government officials and Bank Indonesia about efforts to raise returns on local assets, as sentiment remained fragile.
Concerns center on President Prabowo’s expansive fiscal agenda, rising fuel subsidies linked to the Iran conflict, questions over market transparency, and proposals to centralize exports. Reflecting these worries, foreign ownership of government bonds dropped to its lowest level in nearly two decades as of June 2.
To address rating-agency concerns, Governor Perry Warjiyo said Bank Indonesia would increase the interest paid on government deposits. In May, the central bank raised its benchmark rate by 50 basis points to 5.25%, marking its first policy tightening since 2022.
