Economist Urges Bank Indonesia to Step Up Intervention as Rupiah Nears Rp18,000

JAKARTA, 26 SEPTEMBER 2026 —

Jakarta, Indonesia — The Indonesian rupiah edged closer to the psychologically significant Rp18,000-per-dollar threshold on Friday, a level that has become a focal point for market anxiety amid a confluence of external headwinds.

This weakening coincided with a broader strengthening of the US dollar, which saw the US Dollar Index (DXY) gain roughly 0.9% over the same period. The proximity to the Rp18,000 mark underscores the intensifying pressure on Indonesia’s currency, driven by a stronger US greenback, rising US Treasury yields, persistent capital outflows, and elevated global oil prices.

The immediate catalyst for the rupiah’s softening is widely attributed to external macroeconomic forces rather than domestic policy shifts. Josua Pardede, chief economist at Bank Permata, identified the stronger US dollar and higher US Treasury yields as the primary sources of pressure. He noted that these external factors were compounded by capital outflows and the continued high price of oil.

“Pressure on the rupiah has also been amplified by capital outflows and still-high oil prices,” Pardede told Beritasatu.com on Friday. This assessment aligns with the broader trend observed in emerging markets, where the strength of the US dollar often exerts a drag on local currencies, particularly those with significant trade deficits or high import dependencies.

A key driver of the dollar’s strength is the upward trajectory of US interest rates. The 10-year US Treasury yield stood at approximately 5.16% on Friday, representing an increase of about 16 basis points over the past week. In contrast, Indonesia’s 10-year government bond yield hovered around 7.10%. This configuration leaves a nominal yield gap of roughly 1.94 percentage points before accounting for currency risk.

For foreign investors, this narrowing or shifting dynamic can influence portfolio allocation decisions, often leading to a rotation of assets away from emerging market debt and equities toward safer US instruments. The yield differential is a critical metric for fixed-income managers, as it determines the relative attractiveness of holding Indonesian bonds versus US Treasuries.

The impact of these yield dynamics is visible in recent capital flows. Foreign investors recorded net sales of approximately $110 million in Indonesian bonds on September 22. This outflow was followed by net sales of $83.2 million in Indonesian stocks on September 24. These transactions added to the downward pressure on the rupiah, as the sale of local assets requires the conversion of rupiah proceeds into foreign currency, increasing supply in the foreign exchange market.

The timing of these outflows, occurring just before the weekend, suggests a cautious stance among international investors as they reassess risk exposure in the region.

Oil prices have emerged as another significant source of pressure on the Indonesian economy and its currency. Brent crude traded at around $105 a barrel, a figure that represents an increase of more than 70% since the start of the year. For Indonesia, a net importer of energy, higher oil prices directly increase the country’s dollar needs for energy imports.

This structural deficit in the current account exacerbates the demand for foreign currency, putting additional strain on the rupiah. Elevated oil prices have the potential to feed into domestic inflation and fiscal pressures, as the cost of energy is passed through to consumers and the government’s budget. The combination of higher import costs and potential inflationary pressures creates a challenging environment for monetary policy.

In response to these challenges, Josua Pardede urged Bank Indonesia to strengthen its rupiah stabilization measures. He recommended a multi-pronged approach involving foreign-exchange market intervention, liquidity management, and the use of hedging instruments. These tools are standard components of central bank policy in managing currency volatility, allowing the central bank to smooth out excessive swings in the exchange rate without necessarily altering the underlying monetary stance.

The central bank’s ability to intervene effectively depends on its foreign-exchange reserves and its capacity to manage liquidity in the domestic banking system.

Bank Indonesia recently kept its benchmark BI Rate at 5.75% during its policy meeting on September 22-23. However, Pardede suggested that the rate could rise by 25 basis points to 6% in the fourth quarter if external pressures intensify. A rate hike would serve to maintain the attractiveness of Indonesian assets for foreign investors by widening the yield gap, potentially curbing capital outflows.

The decision to raise rates would likely be driven by the need to defend the currency and manage inflation expectations, particularly in the context of high global oil prices. The central bank’s policy stance will be closely watched by markets as a signal of its commitment to maintaining financial stability.

Beyond short-term intervention, Pardede emphasized that currency stability cannot rely solely on central bank actions. He argued that Indonesia needs to strengthen its structural supply of foreign exchange to reduce its vulnerability to external shocks. This involves optimizing export proceeds, attracting more foreign direct investment, expanding local-currency transactions, and reducing reliance on imported energy. These structural reforms are essential for building a more resilient economy that can withstand fluctuations in global markets.

By diversifying its sources of foreign exchange and reducing its import dependency, Indonesia can mitigate the impact of a stronger US dollar and higher commodity prices on its currency.

Despite the recent weakness, some external buffers remain available to support the rupiah. Indonesia’s foreign-exchange reserves stood at $146.5 billion at the end of August, providing a substantial cushion against potential outflows. The country continued to record a trade surplus in July, indicating that its exports are still outpacing its imports.

Portfolio investment also recorded a net inflow of about $400 million through September 21, suggesting that there is still interest in Indonesian assets despite the recent outflows. These positive indicators provide a foundation for the central bank to manage the currency’s trajectory and maintain market confidence.

Addressing speculation about domestic political factors, Pardede stated that there was insufficient evidence to link the rupiah’s weekly decline directly to the recent change in Indonesia’s finance minister. “I do not see sufficient grounds to conclude that the rupiah’s weakening this week was mainly caused by the change in finance minister,” he said.

Instead, he pointed to the stronger US dollar, higher Treasury yields, capital outflows, high oil prices, and geopolitical uncertainty as factors more consistent with the currency’s recent weakness. This clarification is important in separating domestic political narratives from the broader macroeconomic forces driving the currency’s performance.

The situation highlights the importance of coordination between Bank Indonesia and the government. Such coordination is both to stabilize financial markets in the short term and to strengthen domestic foreign-exchange supplies over the longer term. By working together, the central bank and the government can implement a coherent strategy that addresses both immediate currency pressures and underlying structural vulnerabilities.

This collaborative approach is essential for maintaining economic stability and supporting sustainable growth in the face of a challenging global environment. The coming weeks will likely see continued focus on these efforts as Indonesia navigates the complex interplay of global and domestic economic factors.

Related: Bank Indonesia · Josua Pardede · Jakarta