FX.co ★ Rupiah Under Strain from Narrowing Trade Surplus, Inflation Risks

The Indonesian rupiah weakened toward IDR 17,930 per U.S. dollar on Wednesday, extending its recent slide and edging closer to the psychologically important 18,000 level. The currency came under pressure as a strong U.S. dollar and escalating tensions in the Middle East increased demand for safe-haven assets.

At the same time, domestic fundamentals provided limited support. Indonesia’s trade surplus in April narrowed to its smallest level since 2020, reducing foreign exchange inflows from exports. Investor caution remained elevated despite government efforts to improve dollar liquidity, including the establishment of a new state-owned commodity trading company and stricter foreign-exchange retention requirements for exporters. Reports that some local banks were quoting rates above IDR 18,000 highlighted persistent downward pressure on the rupiah.

On the price front, annual inflation quickened to 3.08% in May from 2.42% in April, mainly on higher food and transportation costs. Risks to inflation persist from global energy price volatility and potential supply disruptions linked to El Niño. Analysts expect Bank Indonesia to continue carefully balancing rupiah stability against growth concerns following its 50-basis-point rate hike in May, with the threat of imported inflation still a key consideration.