The Indonesian rupiah pushed past 17,500 to the dollar in early Tuesday Asia trade, the weakest level on record, before retracing about 0.7 per cent on what Bank Indonesia officials described as "decisive interventions". The currency has now lost almost 9 per cent against the dollar since the start of the Iran war, the largest depreciation in any major emerging-market currency over that span.
President Prabowo Subianto met central-bank governor Perry Warjiyo, Finance Minister Sri Mulyani Indrawati and trade minister Budi Santoso at the Istana Merdeka late on Monday and signed off on a seven-point stabilisation plan. The package, parts of which were briefed out by the central bank in a 6am statement on Tuesday, combines deeper market intervention with regulatory measures — a tightening of foreign-currency export-proceed parking rules, restrictions on offshore rupiah trading, and a coordinated communications strategy with state-owned banks.
Analysts read the plan as preparing the ground for a benchmark-rate increase to 5 per cent at next week's monetary policy meeting, a step Bank Indonesia has resisted through April for fear of choking domestic credit. The May print of headline inflation, due Thursday, is expected to come in at 3.6 per cent, towards the upper end of the central bank's tolerance band but below the level that has historically forced its hand.
The rupiah's pressure is a multi-strand story but Iran sits at the centre of it. Indonesia is a net oil importer, with subsidised retail fuel a substantial line item on the state budget; the price of crude over $100 a barrel for ten consecutive weeks has stretched the fiscal arithmetic at the same time that exporters have repatriated less of their hard-currency revenue in the face of carry-trade unwinds across the Asia-Pacific region.
Prabowo's political response has been to package the currency story alongside his broader economic-nationalist agenda. In remarks to a business audience in Surabaya on Monday, the president framed the rupiah pressure as a "test of national resolve" and announced that a long-discussed sovereign wealth fund, Danantara, would be capitalised at $980 billion over five years. The figure was an order of magnitude larger than analysts had expected and prompted a fresh round of scepticism among foreign investors over the credibility of the headline.
The Jakarta Composite Index closed 1.4 per cent lower at 6,876 on Tuesday, dragged by banks and conglomerates. Yields on the benchmark ten-year government bond rose 12 basis points to 7.83 per cent, the highest since the rupiah crisis of late 2022.
Indonesia is the second of the major ASEAN currencies — after the Thai baht in April — to mark a fresh record low during the Iran war. Bank Indonesia's playbook, refined during the taper tantrum of 2013 and the 2018 dollar squeeze, has generally been to combine spot intervention, dual-currency bond auctions and pressure on state-owned exporters to convert dollar receipts. The mix has been credited with avoiding outright capital controls in every Indonesian currency-stress episode since the Asian financial crisis.