Has Fallen to a Record Low
The Indonesian rupiah came under renewed pressure on Thursday (23 April 2026), depreciating by 0.76% to Rp17,305/USD in early trading and marking a fresh record low, as external headwinds intensified amid a sharp rebound in global oil prices above USD100 per barrel. The currency’s weakness was broadly in line with regional peers, reflecting a synchronized risk-off move across Asian markets driven by escalating geopolitical tensions in the Middle East and renewed concerns over energy supply disruptions, particularly around the Strait of Hormuz. The surge in oil prices has amplified vulnerabilities for Indonesia as a net oil importer, raising concerns over a deteriorating current account position and higher imported inflation, while simultaneously triggering capital outflows across domestic financial markets, including sovereign bonds and equities.

Bank Indonesia Maintains FX Presence, Views Rupiah as Undervalued
Despite the rupiah’s continued depreciation, Bank Indonesia maintains that the currency is undervalued relative to its fundamentals, supported by solid growth, low inflation, and attractive yields, alongside strong policy coordination. This narrative is partly reflected in sustained foreign inflows into SRBI, which reached IDR54.3 trillion year-to-date, alongside additional inflows into SBN. However, these inflows have been offset by aggressive intervention measures, contributing to a decline in foreign reserves to USD148.2 billion from USD154.6 billion earlier in the year, highlighting the cost of defending the currency amid persistent external pressures.
In our view, the current pace and scale of reserve deployment risk resembling a “pouring salt into the sea” approach, providing short-term stabilization but lacking traction against structurally driven outflows. More importantly, the underlying pressure appears increasingly rooted in fiscal sustainability concerns, including the risk of a wider deficit potentially breaching the 3% threshold amid rising oil prices, as well as a structurally elevated interest burden that already exceeds 19% of government spending, well above the commonly accepted 10% prudential benchmark.

Signals a Structural Shift in Risk Perception
In our assessment, the core vulnerability lies in a self-reinforcing fiscal–external feedback loop rather than short-term market dislocations. With government debt maturities in 2026 reaching IDR833.96 trillion, refinancing will need to be executed in a risk-off environment and against a backdrop of a structurally weaker rupiah, effectively forcing the sovereign to clear the market at higher yields. This, in our view, will mechanically lift an already elevated interest burden (currently around IDR599 trillion, or over 22% of tax revenues) further compressing fiscal space and crowding out productive expenditure.
As fiscal capacity to sustain growth diminishes, we believe the credibility of the “growth-first” policy stance will weaken, undermining the very narrative used to justify expansionary positioning. Markets are likely to internalize this deterioration through a higher sovereign risk premium, triggering a second-round effect: while nominal SBN yields rise, USD-adjusted returns become increasingly unattractive due to currency depreciation, prompting foreign investors to reallocate away from Indonesian assets.
The transmission, therefore, is not liquidity-driven but balance-sheet-driven; absent a credible fiscal anchor, we see the expected sequence reversing into a negative loop: higher risk premium, capital outflows, rupiah depreciation, rising USD refinancing costs, and further fiscal tightening. This dynamic is further exacerbated by Indonesia’s exposure to the macro trilemma, where maintaining open capital flows leaves the currency highly sensitive to shifts in investor confidence. In this context, we view the current rupiah level not as a mispricing, but as a forward-looking repricing of sovereign risk, with the key concern centered on the absence of a credible policy inflection that could arrest this adverse cycle.

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Management Team

26 January 2024 - 02.25pm

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