JAKARTA – The Indonesian rupiah continues to face significant pressure against the US dollar as the second half of 2026 approaches. Despite various stabilization measures implemented by Bank Indonesia (BI), several economists believe that sustained strengthening of the rupiah faces substantial challenges from both external and domestic factors.
According to Bloomberg data, the rupiah in the spot market closed 0.20% weaker daily at IDR 17,881 per US dollar on Friday (May 29, 2026). Over the past week, the Garuda currency corrected by 0.91% from its position of IDR 17,717 per US dollar on May 22, 2026. Year-to-date (YTD), the rupiah has depreciated by 6.91% compared to its initial position of IDR 16,725 per US dollar at the beginning of the year.
Josua Pardede, Chief Economist at Bank Permata, noted that previous hikes in BI’s benchmark interest rate did help to mitigate pressure on the rupiah. However, this policy alone has not been robust enough to reverse the weakening trend sustainably. “The sources of rupiah pressure are manifold: energy imports, capital outflows, seasonal dollar demand, fiscal pressure, and doubts about policy direction,” Josua explained to Kontan on Friday (May 29, 2026).
Josua further elaborated that the experience of several Asian countries demonstrates that interest rate hikes do not always provide long-term support for domestic currencies. Bloomberg data confirms this, showing that despite some Asian central banks tightening monetary policy, their currencies remain near multi-year lows, as rate increases aimed at curbing imported inflation have only had a limited impact on exchange rates. He emphasized that rupiah stability hinges not solely on interest rates but also requires an adequate supply of foreign exchange and market confidence in the direction of economic policy.
Three Conditions for Rupiah Stability in H2-2026
Josua projects that the rupiah’s condition in the second half of 2026 will be more stable compared to May 2026. Nevertheless, this stability is deemed fragile and highly dependent on three critical factors. Firstly, geopolitical tensions in the Middle East must genuinely subside, leading to a decrease in global oil prices and, consequently, reduced US dollar demand for energy imports.
Secondly, Bank Indonesia must continuously maintain the attractiveness of rupiah-denominated assets. This involves a strategic combination of interest rate policies, Bank Indonesia Rupiah Securities (SRBI), foreign exchange market operations, and stabilization of the Government Securities (SBN) market, all without excessively depleting foreign exchange reserves. Thirdly, the government needs to strengthen fiscal discipline while ensuring that the policy regarding export proceeds from natural resources (DHE SDA) effectively boosts foreign exchange supply.
“If these three conditions are met, the rupiah could begin to stabilize in the second half. However, if any one of them fails, the pressure towards IDR 18,000 remains open,” Josua clarified. Additionally, he identified several sentiments that will dictate the rupiah’s future trajectory, ranging from global oil prices and developments in US-Iran relations to the direction of US interest rate policy, movements in US government bond yields, and foreign capital inflows into Indonesian stock and bond markets.
Other crucial factors to monitor include the credibility of fiscal policy, the effective implementation of DHE SDA, the current account balance, and stock market sentiment related to MSCI rebalancing and foreign investor net selling, which can escalate the need for rupiah-to-US dollar conversions. Furthermore, the demand for US dollars for dividend payments, foreign debt repayment, and energy imports still poses a potential risk for seasonal pressure on the rupiah during specific periods. “Therefore, the rupiah’s performance in the second half will not be solely determined by BI, but by a combination of global markets, the state budget, exports, imports, and investor confidence in policy consistency,” Josua concluded.
Five Key Drivers of Rupiah Movement
Similar insights were shared by Economist and Professor at Andalas University, Syafruddin Karimi. He identified five primary factors that will influence the rupiah’s movement in the latter half of the year. Firstly, the direction of global interest rates and the strength of the US dollar remain dominant factors determining capital flows to emerging markets. If yields on dollar-denominated assets stay high, investors will demand a larger risk premium to hold rupiah-denominated assets.
Secondly, the credibility of Bank Indonesia’s policy is a critical determinant. The increase in the benchmark interest rate to 5.25% demonstrates BI’s commitment to maintaining stability, but the market is still awaiting consistent communication and the effectiveness of its interventions. Thirdly, the performance of the external sector needs strengthening, particularly given that import growth is currently outpacing exports, while the trade surplus is also narrowing compared to the previous year.
Fourthly, the perception of risk towards Indonesia contributes to exchange rate pressure. Syafruddin noted that the five-year credit default swap (CDS) hovering around 90 basis points and 10-year government bond yields at approximately 6.7% indicate that the market still demands relatively high risk compensation. Fifthly, the quality of fiscal policy will be a pivotal factor in maintaining investor confidence in Indonesia’s economic prospects. “Government spending must enhance productivity, exports, and the state revenue base to provide the rupiah with stronger fundamental support,” Syafruddin emphasized.
Rupiah Projections Through End-2026
Regarding projections, Josua forecasts that the rupiah will trade within a base range of IDR 17,300 to IDR 17,900 per US dollar in the second half of 2026. In a more optimistic scenario, where an effective US-Iran ceasefire leads to lower global oil prices, a weaker US dollar, and renewed foreign capital inflows into domestic markets, the rupiah could potentially strengthen to a range of IDR 17,000 to IDR 17,300 per US dollar by year-end.
Conversely, Syafruddin anticipates the rupiah will trade within a weaker range, specifically IDR 17,900 to IDR 18,400 per US dollar in H2 2026, with his midpoint projection settling around IDR 18,150 to IDR 18,250 per US dollar. These projections align with signals from the forward and non-deliverable forward (NDF) markets, which place the three-month USD/IDR exchange rate near IDR 18,000 per US dollar, the six-month tenor in the range of IDR 18,100–IDR 18,125 per US dollar, and the one-year tenor at IDR 18,300–IDR 18,340 per US dollar.
Summary
The Indonesian rupiah continues to face significant pressure against the US dollar, depreciating to IDR 17,881 by May 29, 2026, and 6.91% year-to-date. While Bank Indonesia’s interest rate hikes offered some mitigation, economists note this policy alone is insufficient due to various pressures like energy imports, capital outflows, and doubts about policy direction. Sustained stability also requires an adequate supply of foreign exchange and market confidence in economic policy direction.
For the second half of 2026, Josua Pardede identifies three critical factors for rupiah stability: subsiding Middle East geopolitical tensions, Bank Indonesia maintaining attractive rupiah assets, and strengthened fiscal discipline with effective export proceeds policies. Economist Syafruddin Karimi adds that global interest rates, BI policy credibility, external sector performance, Indonesia’s risk perception, and fiscal policy quality are also key drivers. Projections vary, with Josua anticipating a base range of IDR 17,300-17,900, while Syafruddin forecasts a weaker range of IDR 17,900-18,400 per US dollar.