RRI.CO.ID, Jakarta - The rupiah’s sharp decline past IDR 17,800 per US dollar in offshore trading has reignited debate over Indonesia’s policy trade-offs, with economists warning that the currency is bearing the brunt of global pressures.

Trimegah Sekuritas Indonesia Chief Economist Fakhrul Fulvian explained in Jakarta on Thursday, May 28, 2026, that under normal circumstances, rising global energy prices would feed into inflation, fiscal pressures, domestic prices, and the exchange rate.

But with the government carefully limiting domestic adjustments to safeguard social stability and purchasing power, much of the strain has shifted onto the rupiah.

“The rupiah has become the main shock absorber. Inflation is contained, energy prices are held down, but the economic pressure doesn’t disappear; it moves to the exchange rate,” Fakhrul said, as quoted by Antara.

He noted that this dynamic makes the rupiah’s weakness appear more pronounced than other economic indicators suggest, aligning with the Dornbusch Overshooting theory: when domestic prices remain rigid while financial markets move quickly, exchange rates can swing far beyond fundamentals.

“Inflation that should have appeared elsewhere is instead being absorbed excessively by the rupiah,” he added.

Such phenomena, he said, are common in emerging economies that prioritize short-term domestic price stability. Indonesia now faces a dilemma between protecting household purchasing power and maintaining external stability.

While holding back energy price adjustments is understandable socially and politically, the consequence is heavier pressure on financial markets.

Despite the currency’s slide, Fakhrul stressed that Indonesia’s economic fundamentals remain relatively sound compared to many peers: inflation is under control, the banking sector is stable, and growth is positive. Yet markets, he cautioned, are looking beyond headline figures.

“What’s being tested now is not only economic fundamentals, but also the credibility and consistency of policy,” he said.

Global factors--geopolitical tensions, trade fragmentation, a stronger US dollar, and high US Treasury yields--are weighing on the rupiah. But domestic factors also play a role, including perceived imbalances between fiscal and monetary policy and sudden policy communications that have amplified uncertainty.

“When fiscal policy keeps inflation low and price adjustments limited, BI and the rupiah have to work much harder,” Fakhrul observed.

The rupiah’s weakness past Rp17,800 per US dollar in offshore markets coincided with Indonesia’s domestic holiday for Eid al-Adha on May 27–28, underscoring the volatility facing policymakers. ***