Rupiah to extend losses as Bank Indonesia battles volatility
[JAKARTA] The Indonesian rupiah will extend this year’s 4 per cent decline due to fragile investor confidence, spurring further intervention by the central bank to stem volatility, according to analysts.
MUFG Bank expects the currency will weaken to 17,100 per US dollar in coming months, while Barclays Bank says its likely to test 17,200 by the first quarter of 2026 with Bank Indonesia (BI) intervening. The rupiah closed on Monday (Apr 21) at 16,805.
The rupiah is the only major Asian currency to decline against the US dollar this year as concerns grow over President Prabowo Subianto’s controversial fiscal policies. The slide is putting pressure on the central bank as it balances efforts to support the currency, while keeping interest rates low to support growth.
Bank Permata’s chief economist Josua Pardede and Bank Danamon’s Hosianna Evalita Situmorang both say BI may defend the currency when it weakens past 17,000. It slid to a record low of 16,957 per US dollar on Apr 9.
“If the rupiah breaches this threshold, the potential for market panic may increase, which could ultimately trigger greater capital outflows and further pressure on the exchange rate,” Bank Permata’s Pardede said.
Overseas investors have sold more than US$1 billion of Indonesian stocks and US$428 million of the nation’s bonds this month, data compiled by Bloomberg show. The rupiah slid for a fifth week last week, the longest string of such losses since October 2023.
A weakening currency may accelerate capital outflows, while seeking to support the currency risks shrinking the central bank’s foreign reserves. BI currently sits on a record high stockpile of reserves, boosted by tax and service revenues as well as the withdrawal of the government’s foreign loans.
“We expect BI to lean heavily on its reserves” and tools such as domestic non-deliverable forwards to smooth volatility, while still tolerating some degree of currency adjustment, said Karinska Salsabila Priyatno, an analyst at Mirae Asset Sekuritas Indonesia. BLOOMBERG
