FX.co ★ Rupiah Struggles as Domestic Pressures Outweigh Softer Dollar

The Indonesian rupiah traded above IDR 17,110 per dollar on Tuesday, hovering near record lows despite a softer U.S. dollar index. Persistent capital outflows and mounting concerns over weakening domestic fundamentals—highlighted by March’s decline in foreign reserves—continued to weigh on sentiment. Market hopes for a potential U.S.–Iran agreement provided little support, underscoring the dominance of local pressures.

The rupiah’s weakness is stoking imported inflation, especially in the manufacturing and transport sectors. Although March inflation remained within Bank Indonesia’s 1.5%–3.5% target range, the risks are skewed to the upside amid volatile oil prices and rising fiscal demands linked to President Prabowo’s policy agenda.

Attention now turns to next week’s policy meeting, after Bank Indonesia kept its benchmark rate unchanged at 4.75% in March for a sixth consecutive decision, following a cumulative 150 bps of rate cuts since September 2024. Recently, policymakers have signaled limited scope for further easing, with Governor Perry Warjiyo emphasizing a shift toward prioritizing financial stability and resilience against external shocks.