The Indonesian rupiah weakened to a record low of around IDR 17,080 per dollar on Tuesday, extending its slide as the dollar index strengthened. Selling pressure intensified amid heightened tensions in the Middle East, with President Trump setting a deadline for Iran to agree to a deal or face potential military action. Expectations that the U.S. Federal Reserve will keep interest rates unchanged this month further underpinned the greenback.
Domestically, surging oil prices and rising geopolitical risks fueled inflation concerns and added strain to fiscal conditions, particularly in relation to President Prabowo’s flagship programs, putting additional pressure on the current account. Indonesia’s external buffers also deteriorated as the February trade surplus narrowed on weaker exports and higher imports, while foreign exchange reserves fell to a three-month low in the same period.
Limiting further losses, Bank Indonesia confirmed that it had intervened in both the spot and non-deliverable forward markets to stabilize the currency. At the same time, the government reiterated its commitment to maintaining fuel subsidies and keeping the fiscal deficit capped at 3% of GDP this year, based on an assumption that oil prices will average USD 100 per barrel.
