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04/06/26
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Rupiah Hits Record Low as Indonesia Fiscal Worries Grow
USD/IDR climbed to a fresh record high of 18,074 on Thursday, extending its advance for a second straight session. The rupiah remains under pressure as investors grow increasingly cautious about Indonesia’s fiscal position and as speculation builds around a possible sovereign rating downgrade.
Sentiment toward the local currency has also weakened after capital outflows intensified. The removal of eight Indonesian stocks from the FTSE Russell index added to earlier MSCI-related pressures, reinforcing concerns about portfolio flows. At the same time, higher oil and gas import bills have narrowed Indonesia’s trade surplus, while foreign exchange reserves fell in April to their lowest level in nearly two years as Bank Indonesia increased market intervention.
The pair’s upside may be limited in the near term by a softer US dollar, which has eased as geopolitical risk sentiment improved. Relief followed news that Israel and Lebanon agreed to renew a ceasefire, although the arrangement still depends on a full halt in fire by Hezbollah. The deal, announced after US-led talks in Washington, also includes pilot security zones in which Lebanese forces would take exclusive control.
Even so, the dollar could regain strength if markets continue to price in a more restrictive Federal Reserve stance. A series of stronger-than-expected US labor market indicators, including the May ADP private payrolls report and JOLTS job openings data, pointed to resilient employment conditions. That has reinforced expectations that US interest rates may remain elevated for longer, and some traders now see scope for another rate increase later this year.
For USD/IDR, the combination of domestic vulnerabilities and shifting US rate expectations is likely to keep volatility elevated. With the rupiah already at a historic low, market participants will be watching for further signs of stress in Indonesia’s external accounts and for fresh clues on the Fed’s policy path.
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