The Indonesian rupiah remained above IDR 18,000 per U.S. dollar on Tuesday, trading close to its weakest level since early August, as a stronger dollar dampened sentiment. The greenback hovered near a two-month high on expectations of further Federal Reserve tightening, with rising energy prices intensifying inflation concerns.
On the domestic front, investors stayed cautious ahead of the release of August trade figures and September inflation data. Headline inflation quickened to 3.19% year-on-year in August, driven higher by food prices amid supply disruptions linked to El Niño. Fiscal and external vulnerabilities also persisted, particularly due to elevated crude oil prices, given Indonesia’s dependence on energy imports.
Economists cautioned that a prolonged period of rupiah weakness could weigh on economic growth by increasing the cost of imported inputs, energy, and capital goods. Even so, downside pressure on the currency was partly contained by Bank Indonesia’s active interventions in offshore non-deliverable forwards (NDFs), the domestic spot market, and domestic NDF (DNDF) instruments. Last week, the central bank left its benchmark interest rate unchanged at 5.75% for a third consecutive month, following a cumulative 100-basis-point increase between May and June.
