KONTAN.CO.ID – JAKARTA. The rupiah exchange rate concluded Thursday’s (May 21) trading session weaker against the US dollar, a surprising outcome even after Bank Indonesia (BI) had raised its benchmark interest rate (BI Rate) to 5.25%.
According to Bloomberg data, the spot rupiah closed at Rp 17,667 per US dollar, marking a 13-point or 0.07% depreciation from its previous close of Rp 17,654 per US dollar. In contrast, Bank Indonesia’s Jakarta Interbank Spot Dollar Rate (JISDOR) showed a 0.07% strengthening, settling at Rp 17,673 per US dollar from its prior close of Rp 17,685 per US dollar.
M. Rizal Taufikurahman, Head of the Macroeconomics and Finance Center at Indef, highlighted that significant pressure on the rupiah persists despite BI’s decision to raise the BI Rate. He noted that market sentiment continues to perceive both global and domestic risks as elevated, contributing to the currency’s vulnerability.
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Taufikurahman identified several key factors contributing to the rupiah’s depreciation, including the strengthening of the US dollar, soaring global oil prices, elevated US Treasury yields, and persistent concerns over capital outflow from emerging markets.
“The rupiah’s movement over the past month has displayed a consistently depreciating trend, which has not been fully contained by monetary intervention,” Rizal told Kontan on Thursday (May 21).
Rizal further explained that while a benchmark interest rate hike can offer a short-term buffer for exchange rate stability, the market is currently also scrutinizing underlying domestic fundamental issues. These include significant energy import pressure, perceptions of fiscal risk, and the diminished attractiveness of capital inflows, all of which weigh on the rupiah’s performance.
He emphasized that true rupiah stabilization cannot solely rely on interest rate instruments. The government and monetary authorities must also proactively maintain fiscal credibility, implement strategies to control the current account deficit, and strategically strengthen positive market expectations to achieve sustainable stability.
For Friday’s (May 22) trading session, the rupiah is projected to experience volatile movement, likely fluctuating within the range of Rp 17,550 to Rp 17,750 per US dollar.
High volatility is anticipated to persist as markets closely monitor the direction of the US dollar index, movements in US government bond yields, global oil prices, and the dynamics of foreign capital flows in both domestic stock and bond markets. These interconnected factors will continue to influence investor sentiment.
Rizal believes that markets will also be evaluating the effectiveness of the BI Rate hike in maintaining rupiah stability without excessively stifling crucial economic growth and credit disbursement, a delicate balance for policymakers.
“Should global pressures intensify once more, the rupiah could potentially approach the Rp 17,700 per US dollar level again,” he concluded, signaling continued caution.
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Summary
The Indonesian rupiah weakened to 17,667 per US dollar on May 21, despite Bank Indonesia’s decision to raise the benchmark interest rate to 5.25%. Analysts note that persistent depreciation stems from a stronger US dollar, rising global oil prices, and concerns over capital outflows from emerging markets. Market sentiment remains cautious as investors evaluate whether monetary policy alone can counter ongoing domestic and global economic risks.
Experts suggest that relying solely on interest rate hikes is insufficient to stabilize the currency, emphasizing the need for stronger fiscal credibility and better management of the current account deficit. The rupiah is expected to remain volatile in the upcoming trading sessions, fluctuating between 17,550 and 17,750 per dollar. Ultimately, policymakers face the delicate challenge of maintaining exchange rate stability without hindering national economic growth and credit disbursement.