FX.co ★ Rupiah Strengthens, Still Asia’s Laggard in 2025

On Tuesday, the Indonesian rupiah strengthened to approximately IDR 16,760 per dollar, recovering from a three-day decline. This movement coincided with the dollar index lingering near a two-month low, as investors anticipated the Federal Reserve's December meeting minutes. The thin trading volume common at the year's end further accentuated this shift, with market sentiment bolstered by Bank Indonesia's consistent monetary policy stance. The central bank maintained its interest rates for the third consecutive meeting in mid-December, following a cumulative reduction of 150 basis points over the prior year, reflecting a careful approach to supporting economic growth.

Attention now turns to the upcoming release of December's inflation data, anticipated to show a decrease from its 18-month peak, yet remaining within Bank Indonesia's target range of 1.5% to 3.5%. Such a result would mitigate immediate concerns about policy adjustments. Additionally, Indonesia is expected to continue its impressive record of trade surpluses, posting a surplus for the 67th straight month in November, underscoring strong export performance and providing a stabilizing factor for the rupiah.

Despite this recent uptick, the rupiah still ranks among the weakest-performing currencies in Asia this year, having depreciated roughly 4.3%. The currency’s underperformance is primarily attributed to investor concerns over Bank Indonesia's continued dovish approach to monetary policy.