The Indonesian rupiah fell to a new record low of around IDR 17,600 per dollar in thin Friday trading, extending the previous session’s losses as a stronger U.S. dollar and rising U.S. inflation pressures bolstered expectations that the Federal Reserve will keep interest rates higher for longer. On a weekly basis, the rupiah is heading for a seventh consecutive decline, down about 0.5%, weighed by concerns over shrinking foreign exchange reserves, growing fiscal pressures, and mounting inflation risks tied to the conflict involving Iran, which could push up energy costs despite Indonesia’s subdued April inflation reading.
Investor caution also intensified ahead of the release of first-quarter current account figures, after the balance swung into deficit in the fourth quarter due to a wider oil trade gap. Even so, the rupiah’s downside was limited by speculation that Bank Indonesia could lift its benchmark interest rate to 5% next week from 4.75%, where it has been held since October. Earlier in the week, the government also launched a bond stabilisation fund to support the debt market amid rising yields and persistent foreign outflows.