FX.co ★ Rupiah Weakens as Central Bank Signals Rate Cuts

The Indonesian rupiah weakened to around IDR 16,800 per dollar on Tuesday, erasing earlier gains after Bank Indonesia reaffirmed its intention to resume its interest rate-cutting cycle to support economic growth. Although policymakers emphasized that future moves will remain data-dependent, the statement reinforced expectations of further monetary easing this year, following a cumulative 150 basis points of rate cuts since September 2024.

Domestic data also weighed on the currency, as December retail sales growth fell to a four-month low, highlighting softening consumer demand despite ongoing government support measures. Meanwhile, governance concerns re-emerged after Thomas Djiwandono, nephew of President Prabowo, was sworn in as deputy governor of Bank Indonesia, raising fresh questions about the central bank’s policy independence and credibility.

Externally, the US dollar index edged lower after reports that Chinese regulators had urged domestic financial institutions to reduce their holdings of US Treasuries in order to mitigate concentration risk and shield against policy uncertainty. Even so, domestic monetary policy signals remained the primary driver of the rupiah’s performance.