The rupiah was extremely close to the record low of Rp 16,640 per dollar set during the peak of the COVID-19 pandemic in 2020.

We need an act of prudence from both the government and Bank Indonesia (BI) to navigate the currency in these uncertain times.

The word from the US Federal Reserve is that one rate cut could be in the cards by the end of this year if their economic forecasts play out as expected. The market was anticipating two, but it seems like we might only get one.

Escalating geopolitical tension is another cause for concern. It looks like the Middle East conflict is going to drag on for a while longer, with Israel getting closer to all-out war with Hezbollah, to exacerbate its eight-month-long conflict with Hamas.

This turn of events has placed BI in a challenging position regarding its monetary policies. However, the central bank has chosen to maintain its benchmark rate at the current level, despite expectations of an increase. Indeed, some analysts have interpreted Thursday's decision as a postponement of the anticipated hike rather than a definitive decision not to proceed with it.

However, BI may have done the right thing, as it needs to remain prudent in preserving the “ammunitions” at its disposal, especially after a rate hike in April.

It is true that the country’s foreign exchange reserves took a hit, dropping by almost 7 percent year-to-date (ytd) to US$136.2 billion in April. But the last hike in the same month helped this number increase to $139 billion in May.

On top of that, analysts think the Fed will make a cut sooner rather than later. Many have highlighted the risk of a recession in the US, as well as the continued cooling of inflation data over recent months. Both are set to give the Fed a chance to start lowering rates as early as September.

It is easy to blame everything on external factors, but we cannot ignore the fact that our elites have caused problems for themselves at home.

Concerns about the incoming government’s fiscal sustainability have weighed on the rupiah exchange rate over the past month. President-elect Prabowo Subianto looks set to raise the debt-to-GDP ratio and budget deficit to realize his campaign promises, including his plan to provide free lunches to millions of schoolchildren.

Analysts, including those from credit rating agencies, have been wondering how the incoming government is going to raise its revenue in such a short time to finance all those promises.

BI can maintain its prudence to help ease the concerns of investors ahead of the government transition. However, BI can only do so much, as this is beyond its control.

The government, including the new administration, need to show that they can stick to a sensible budget policy and that fiscal sustainability is not an issue.

The market would benefit, and people would be reassured, if there were more than just an announcement to deny rumors, a media briefing, and some counter-narratives.

Saying that “everything will be all right” or “there is nothing to worry about” will not suffice to calm the public or the market. Investors want to know that the new government is going to stick with its plan for the duration of its tenure.

The government and the central bank have done well in navigating the country through crises and uncertainties in past years as was evident in the effort to tame inflation. This time around they should give the recipe for success another shot.