The Indonesian rupiah weakened to around IDR 17,950 per U.S. dollar on Wednesday, retreating after briefly strengthening below IDR 17,850 in the previous session. Downward pressure intensified as the U.S. dollar remained firm and renewed tensions in the Middle East dampened prospects for a ceasefire, amplifying geopolitical risks. Domestically, sentiment deteriorated after May’s consumer confidence index fell to an eight-month low, highlighting mounting concerns over household income and overall economic conditions.
Support from Bank Indonesia’s surprise 25-basis-point rate hike on Tuesday quickly faded as a 32% increase in non-subsidized fuel prices took effect, fuelling inflation worries. Attention now turns to next week’s policy meeting as officials struggle to stabilize the rupiah, which has repeatedly touched record lows. Despite cumulative rate hikes of 75 basis points since May and a USD 12 billion drawdown in foreign-exchange reserves this year, stabilization efforts have gained limited traction. Governor Perry Warjiyo maintains that FX reserves remain adequate, but markets remain wary about fiscal pressures, the subsidy burden, and uncertainty surrounding new export regulations.
