Bank Indonesia (BI) maintains a strong belief that the rupiah exchange rate possesses the potential to rebound and strengthen to Rp 16,500 per US dollar (USD) this year. This optimistic outlook persists despite the national currency currently facing considerable pressure stemming from global factors and an elevated demand for foreign currency.
Ramdan Denny Prakoso, Executive Director of BI’s Communication Department, affirmed that Bank Indonesia has deployed every available policy instrument, going “all out,” to safeguard the stability of the rupiah exchange rate. He elaborated that the current downward pressure on the rupiah is significantly influenced by a seasonal surge in US dollar demand, typically observed during the April to June period.
“After we move past the season of high dollar demand, specifically April, May, and June, God willing, the rupiah has strong potential to strengthen,” Ramdan stated following a meeting with the House of Representatives Commission XI on Monday (May 18). He added that BI maintains its optimistic projection for the average rupiah exchange rate in 2026 to be Rp 16,500 per USD, with an anticipated range of Rp 16,200 to Rp 16,800. To achieve this, BI is actively implementing seven strategic measures to bolster the rupiah, while closely monitoring the continuously evolving and uncertain global developments.
According to Ramdan, external pressures remain elevated due to the rising global oil prices amidst uncertainties in the Strait of Hormuz, alongside an increase in US Treasury yields, which are currently hovering around 4.6-4.7%. He noted that these global conditions are exerting considerable pressure on currencies across almost all nations. “If we observe this May, a significant number of countries have seen their currencies weaken against the USD,” he remarked.
Echoing this sentiment, BI Governor Perry Warjiyo reiterated that the rupiah’s current position is undervalued, meaning it is trading below its true economic fundamentals. Perry expressed BI’s unwavering belief in the Rp 16,500 per USD average target, asserting that it is firmly grounded in the nation’s robust economic fundamentals, which align well with current macroeconomic projections. “We still believe that the average exchange rate for the entire year 2026 will be Rp 16,500, with a range of Rp 16,200 to Rp 16,800,” he affirmed.
He further elaborated that the present weakening of the rupiah is primarily triggered by seasonal factors. These include the increased demand for foreign exchange for Hajj and Umrah pilgrimages, corporate dividend payments, and the repayment of corporate foreign debt. Perry indicated that these pressures typically subside after June, paving the way for the rupiah to potentially strengthen again in July and August.
Reflecting on his extensive experience, Perry shared, “I don’t want to boast, but I have indeed lived through crises, from crisis to crisis. I was also there during 1997-1998, the 2008 global financial crisis, the taper tantrum, and even Covid. Generally, exchange rate pressures tend to strengthen in July, August, and so on, which is why we believe it is currently undervalued.” He also pointed to broader global factors such as the conflict in the Middle East, escalating geopolitical risks, a strengthening US dollar, and soaring global oil prices, all of which are significantly pressuring currencies in emerging markets, including the rupiah.
However, he emphasized that this challenging situation is not unique to Indonesia but is being experienced by almost all countries worldwide. “In February last year, there were policies like reciprocal tariffs, America’s ‘liberation day.’ At that time, the exchange rate was Rp 17,000, but we managed to strengthen it last year,” Perry recounted. “This February, however, saw the Middle East War, which the top-left chart clearly shows led to extremely high geopolitical risk. That is truly a global phenomenon; I don’t want to blame global factors, but all countries are facing this global challenge.”
Summary
Bank Indonesia remains optimistic that the rupiah will strengthen to an average of Rp 16,500 per US dollar this year, despite current pressures from global factors and seasonal surges in foreign currency demand. Officials attribute the recent weakness to external elements, including rising US Treasury yields, geopolitical tensions in the Middle East, and higher global oil prices. Bank Indonesia emphasizes that the currency is currently undervalued and that its stability is supported by the nation’s robust economic fundamentals.
To stabilize the exchange rate, the central bank is actively deploying strategic policy instruments and monitoring global developments. Management expects the downward pressure, driven by seasonal factors like corporate dividend payments and pilgrimage-related demand, to subside after June. Historically, these pressures typically ease by mid-year, providing a pathway for the currency to recover in the third quarter.