Why Rupiah Keeps Weakening

RRI.CO.ID, Jakarta - The Indonesian Rupiah faced more pressure in today’s trading session, weakening further against the US Dollar. The currency fell to around 17,950 per USD, nearing the psychological level of 18,000.

Bank Indonesia (BI) has taken several aggressive steps to slow the Rupiah’s decline. One major move was holding an earlier-than-usual board meeting, which resulted in a 100 basis point increase in the benchmark interest rate.

The rate hike briefly supported the Rupiah, but the impact proved transitory. The currency soon moved back toward the 18,000 level against the US Dollar.

BI also attempted to strengthen the Rupiah by increasing the yield of SRBI (Bank Indonesia Rupiah Securities), which reached around 7.5%. This strategy helped the currency recover, albeit temporarily.

In addition, BI has carried out direct market interventions to stabilize the foreign exchange market. These measures have helped reduce pressure, but they have not been enough to sustainably appreciate the Rupiah.

These policies come with high costs, including pressure on foreign exchange reserves and businesses. Relying too much on monetary policy may weaken economic fundamentals and increase vulnerability to future crises.

A stronger Rupiah requires a more balanced approach between monetary and fiscal policies. So far, there have been limited changes in fiscal policy to address the main factors behind the currency pressure.

If the current policy approach continues, the Rupiah may remain under pressure. Indonesia can learn from Japan’s experience, where the Bank of Japan (BoJ) has used similar monetary measures but has not been able to engineer a full recovery for the Yen.

Writer: Gunawan Benjamin (Economist, Islamic University of North Sumatra)