JAKARTA: The Indonesian rupiah slumped to its lowest level in more than two decades on Tuesday (March 25), underscoring growing worries about the nation’s economic resilience amid mounting global uncertainty and apprehensions over domestic policy.
Analysts warn that the currency’s decline could signal continued volatility, urging policymakers to create a clear and coordinated strategy to alleviate investor concerns.
“Conciliatory guidance from the authorities on the fiscal situation and a growth-supportive stance might help to restore confidence in the near-term,” said DBS Bank economist Radhika Rao.
The rupiah fell as much as 0.54 per cent to 16,640 against the US dollar in morning trade on Tuesday. Its all-time low was 16,800 in June 1998, during the Asian financial crisis, according to the London Stock Exchange Group.
In response, Bank Indonesia (BI) intervened aggressively, purchasing rupiah in the spot and bond markets and entering the domestic non-deliverable forwards market. After the intervention, the currency recouped some losses, finishing the day at 16,590 per dollar.
Edi Susianto, head of monetary management at BI, stressed that the central bank had decisively stabilised the currency, describing the intervention as a “bold” effort to balance foreign exchange supply and demand.
Fitra Jusdiman, BI’s director of monetary and securities asset management, said external pressures – from trade tensions to geopolitical risks – were putting pressure on the rupiah.
“Global uncertainty is still related to the impact of [US President Donald] Trump’s tariff policy and geopolitical turmoil, including the impact of the trade war on China and many other emerging market countries in Asia,” Fitra said.
However, Lukman Leong, a currency analyst at Doo Financial Futures, said global factors were only part of the story, and that domestic concerns were playing an equally significant role.
“Regional currencies are also weakening, but the rupiah, in particular, is affected by negative domestic sentiment, especially concerns about the government’s fiscal policies,” he said as quoted by CNN Indonesia.
Since the beginning of the year, the rupiah has depreciated more than three per cent against the US dollar, making it one of the weakest-performing emerging market currencies.
Syafruddin Karimi, an economist at Andalas University, pointed out that recent government spending plans and policy announcements had caused uncertainty instead of reassuring investors, noting that the central bank’s interventions had been reactive rather than pre-emptive.
“When the government’s fiscal narrative does not align with Bank Indonesia’s policies, the exchange rate weakens and confidence erodes,” he said as quoted by Bisnis.com.
President Prabowo Subianto’s ambitious policies, including his signature nationwide free meals programme for student and the Danantara sovereign wealth fund, have added to concerns over Indonesia’s fiscal health.
The free meals programme, estimated to cost US$24 billion annually, has raised concerns about fiscal sustainability, especially after the country posted a budget deficit in the first two months of the year due to a double-digit decline in state revenues, partly caused by falling commodity prices.
Meanwhile, the launch of Danantara, aimed at managing a potential US$900 billion in assets, has raised concerns over governance and transparency. While it aims to drive growth by consolidating assets from state-owned enterprises like Bank Mandiri and Pertamina, critics warn weak oversight could allow for political influence and mismanagement. Market scepticism is already evident, with state-owned bank stocks falling amid doubts over the fund’s economic impact.
Looking ahead, the rupiah was expected to remain weak ahead of a long 11-day holiday in Indonesia to celebrate the Aidil Fitri holiday, which will start at the end of this week, SMBC economist Ryota Abe said.
The outlook for the economy might remain gloomy if BI continues to keep interest rates high to defend the currency, he added.
BI maintained its benchmark interest rate at 5.75 per cent in its February meeting, focusing on managing rupiah stability while waiting for the opportunity to cut rates. - The South China Morning Post
