FX.co ★ Rupiah Under strain as Dollar Rises, Fiscal Concerns Mount

The Indonesian rupiah weakened to nearly IDR 17,900 per US dollar on Thursday, extending its recent slide as the dollar index hovered near a two-month high. The move followed a jump in US Treasury yields and growing expectations of further policy tightening, underpinned by robust US private-sector activity.

Domestically, the rupiah remained under pressure from fragile fundamentals, including soft consumer confidence and subdued household spending. Fiscal concerns added to the strain, as higher oil prices heightened budget risks and lawmakers pressed to amend the State Finance Law to permit budget deficits in excess of 3% of GDP.

Bank Indonesia has focused on supporting the currency through measures beyond interest rates, such as raising the FX swap hedging incentive to 25% to attract foreign capital inflows and dampen speculative pressures. The central bank left its benchmark interest rate unchanged at 5.75% for a third consecutive month in September, after delivering a total of 100 basis points of hikes in three moves since May.

The rupiah has depreciated by about 0.8% so far this week, putting it on track for a second consecutive weekly loss.