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View all search resultsAnalysis: Rupiah’s drop signals deeper risks beyond market volatility
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An employees shows rupiah and US dollar bank notes at Bank Mandiri Syariah, Jakarta, in this file photo. (Antara/Nova Wahyudi)
T
he rupiah recently plunged to an all-time low of Rp 17,514 per United States dollar, and pressure on the currency may intensify in the second quarter as Indonesia faces a convergence of external and domestic challenges. Maturing government debt, dividend repatriation by foreign investors and soaring oil prices are tightening dollar liquidity, while the latest MSCI Indonesia rebalancing threatens further capital outflows.
Both the central bank and the government have made concerted efforts to defend the rupiah, but so far to little avail. The currency’s persistent weakness increasingly reflects not only deteriorating fundamentals, but also eroding market confidence in the consistency of economic policymaking.
Bank Indonesia has introduced several stabilization measures, including large-scale foreign exchange intervention, efforts to attract foreign capital through Bank Indonesia Securities (SRBI), purchases of government securities (SBN) on the secondary market, loose liquidity conditions in the market and banking sector, increased intervention in the non-deliverable forward (NDF) market, restrictions on dollar purchases to a maximum of US$25,000 per person per month and closer monitoring of dollar transactions.
The government has also joined Bank Indonesia in defending the rupiah by introducing a Bond Stabilization Fund (BSF), a mechanism to buy back government bonds during periods of market stress using excess budget balances (SAL). Yet these measures have so far failed to arrest the rupiah’s decline.
The rupiah has weakened steadily against major currencies, including the US dollar, Singapore dollar, euro and Australian dollar, since last year. Year-to-date, the rupiah has depreciated by around 5 percent, while regional peers such as the Singapore dollar, Brunei dollar and Malaysian ringgit have appreciated. Domestically, the currency’s weakness cannot be separated from rising inflationary pressure and rapid money supply expansion. In April 2026, base money growth reached 14.6 percent year-on-year, significantly higher than the single-digit growth recorded a year earlier.
The second quarter has historically been vulnerable due to seasonal dividend repatriation, when multinational companies convert rupiah earnings into foreign currency. This year, however, the pressure is amplified by around Rp 30 trillion ($1.7 billion) in maturing government securities. At the same time, the government faces a swelling subsidy burden as oil and gas prices surge following the prolonged conflict between the US and Iran.
Energy subsidy and compensation spending in the first quarter jumped 266.5 percent year-on-year to Rp 118.7 trillion, equivalent to 26.6 percent of the 2026 State Budget allocation. With oil prices remaining elevated, fiscal pressure is expected to worsen. Exchange rate depreciation also places additional strain on state-owned enterprises such as PT Pertamina and PLN, both of which carry significant foreign exchange exposure.
