Indonesia's rupiah has tumbled to a record low against the US dollar, breaching the psychological barrier of 18,000 as soaring energy costs weigh on the economy. The currency hit 18,028 per dollar on Thursday, despite recent central bank efforts to support it.
The energy shock from the US-Israel war with Iran has placed a significant burden on energy-importing Southeast Asian economies, particularly Indonesia and the Philippines. Pressure on trade balances has contributed to capital outflows and weaker currencies.
Conflicts in the Persian Gulf reignited on Wednesday, pushing oil prices up more than 1%. Compounding regional uncertainty, the US proposed additional import tariffs of 10% or 12.5% on goods from 60 economies, including Indonesia, Malaysia and Singapore, over alleged forced labor violations.
Josua Pardede, chief economist at Permata Bank, said the 18,000 rate is a "psychological threshold" for market investors. He told AFP that the weakness is driven by high dollar demand due to surging oil prices and a narrowing trade surplus.
Indonesia is a net oil importer and is particularly exposed to rising crude costs, though the government insists it will keep subsidized fuel prices unchanged. The country's trade surplus has been severely hit, shrinking to just $89 million in April from $3.3 billion a month earlier, further reducing the supply of dollars in the domestic market.
"The supply of dollars from goods trade is drying up, while demand for dollars for energy imports, raw materials, dividends, foreign debt payments and seasonal needs remains substantial," Josua said. "This is why Bank Indonesia's rate hikes and intervention are not enough to reverse the rupiah's depreciation."
The central bank raised its benchmark rate by 0.5 basis points to 5.25% last month—its first increase in two years—aiming to stabilize the rupiah and contain inflation. Central bank spokesperson Ramdan Denny Prakoso said on Wednesday it continues to use "all available policy instruments" to "maintain adequate foreign exchange liquidity". Bank Indonesia has also tightened rules on dollar purchases. Since May, buyers of more than $25,000 per month must provide supporting documents to justify their foreign exchange needs.
