Rupiah Plummets to Near 1998 Crisis Levels

JAKARTA, KOMPAS — A week after stock market trading was temporarily halted due to a sharp correction, the rupiah has plunged to its lowest level since the Covid-19 pandemic and is approaching the depreciation levels of 1998. Moving forward, the financial market risks falling deeper if market confidence in Indonesia's investment prospects continues to diminish.

Quoting data from the Jakarta Interbank Spot Dollar Rate (Jisdor) on Tuesday's trading (25/3/2025), the exchange rate of the rupiah closed at Rp 16,622 per US dollar. Thus, the rupiah recorded its lowest level throughout 2025, with a depreciation of 2.79 percent compared to the end of 2024.

In fact, the exchange rate of the rupiah has approached its lowest level in the past five years, precisely since April 2, 2020, when it was at the level of IDR 16,741 per US dollar.

The rupiah depreciation this time is also approaching its lowest level in history, namely during the 1998 monetary crisis. Based on Kompas archives, the rupiah exchange rate on the Jakarta interbank spot money market at that time closed at IDR 16,900 per US dollar on June 17, 1998. The rupiah exchange rate even touched IDR 17,000 per US dollar in trading on January 22, 1998.

The Director of the Monetary Management and Securities Asset Department of Bank Indonesia (BI), Fitra Jusdiman, claimed that the current weakening of the rupiah is different from the conditions in 1998. At that time, there was a significant surge in the exchange rate of the rupiah, from Rp 8,000 per US dollar to nearly Rp 17,000 per US dollar, or approximately 112 percent.

"Fundamentally, Indonesia's current condition is far better compared to that time (the 1998 monetary crisis). Compared to mid-2024, the rupiah has only depreciated by 1.33 percent, which is significantly lower than the South Korean won, which depreciated by 6.3 percent, and the Indian rupee, which depreciated by 2.74 percent," he said when contacted from Jakarta.

After the election of Donald Trump as President of the United States in November 2024, the exchange rates of almost all countries weakened, both developed and developing nations. According to Fitra, the pressure on the rupiah at present is due to global factors that remain fraught with uncertainty.

The condition, among others, was triggered by the impact of Trump's tariff policy, the direction of the US central bank's policy, the Federal Reserve (The Fed) which tends to be tighter (hawkish), and geopolitical turmoil. This has caused the US dollar exchange rate to strengthen against most other currencies and US government bond yields.

From the domestic perspective, Fitra explained that the increased demand for foreign exchange (forex) from corporations for dividend payments ahead of Lebaran also affects the movement of the rupiah exchange rate. Therefore, BI is committed to continuing various measures to stabilize the exchange rate to maintain market confidence.

In this case, BI will monitor the movement of the rupiah while ensuring it, by remaining in the market while taking triple intervention. The intervention was carried out both in the spot market, the domestic non-deliverable forward (DNDF) market, and by buying government securities (SBN) in the secondary market in a bold and measured manner.

"This step is to ensure exchange rate stability and foreign exchange demand-supply balance so as to maintain market confidence," he said.

In a world of uncertainty, only countries with direction and steadfastness will be trusted by the market. Stability is not enough with intervention alone.

Meanwhile, the weakening of the rupiah this time also occurred a week after the turmoil that hit the domestic stock market. On March 18, 2025, the Indonesia Stock Exchange was forced to stop trading (trading halt) for the first session, because the Composite Stock Price Index (IHSG) was corrected by 6 percent.

This condition was caused, among other things, by foreign investors selling in the stock market, which in mid-March 2025 was recorded at IDR 22.21 trillion. As a result, the JCI at that time closed at 6,011.84 or the lowest since 2021.

Lecturer at the Department of Economics, Andalas University, Syafruddin Karimi, said that the turmoil that hit the IHSG and the exchange rate showed that technical reactions alone were not enough to calm the market. This means that the market needs a clear policy direction and commitment from the government.

In addition, a transparent and consistent communication strategy is also needed, as well as medium-term planning that can be adhered to by the market.

"BI has played its role. Now, it is the government's turn to build a credible and comprehensive policy direction. Because, in a world filled with uncertainty, only a country that has direction and steadfastness will be trusted by the market. Stability is not enough with intervention alone," he said.

The weakening of the rupiah exchange rate in the past few months tends to be anomalous or unnatural. Instead of strengthening when the US dollar index against other currencies (DXY) tends to weaken, the rupiah actually depreciates.

Since November 2024, DXY recorded its highest point by touching the level of 109.96 on January 13, 2025. Then, DXY turned down slowly until it touched its lowest level on March 18, 2025, which was 103.24 or weakened by 6.11 percent. On the other hand, the rupiah exchange rate actually weakened by 2.79 percent.

According to Syafruddin, the rupiah depreciation in the last few months tends to be quite worrying. Because, the pressure on the rupiah does not only come from global factors, but also from domestic sentiment that has not fully recovered.

"Internal factors, such as doubts about the direction of fiscal policy, market speculation about the positions of key economic officials, and weak policy communication, play a significant role in shaping market expectations," he said.

In addition, the historical weakening of the rupiah has also occurred gradually since 2015 with a sharp spike during Covid-19 and has been under pressure again since 2023. This reflects deeper domestic problems, such as weak policy consistency, lack of convincing economic communication, and imbalances between fiscal and monetary.

Ultimately, the rupiah exchange rate is a reflection of how the market views the strength, direction and leadership of our economy.

Syafruddin estimates that the movement of the rupiah exchange rate in the future will depend heavily on the policies that will be taken, both by the government and the monetary authorities. Without clarity on the direction of medium-term policies, the market will continue to be defensive.

In other words, market players need clear and consistent policy direction, not just promises. When the government's fiscal narrative is not in line with monetary policy, the exchange rate weakens as market confidence erodes.

"The key is not only in technical responses such as market intervention, but in restoring confidence through clear, transparent and market-predictable policy directions. Ultimately, the rupiah exchange rate is a reflection of how the market views the strength, direction and leadership of our economy," Syafruddin said.

Likewise, senior economist at the Institute for Development of Economics and Finance (Indef) Mohamad Fadhil Hasan said that the anomalies occurring in the domestic financial market were not only due to external factors, but also the result of domestic problems.

The domestic problems are caused by, among others, government policies. For example, the formation of Danantara, the Red and White Cooperative, Free Nutritious Meals, and the 3 Million Homes program. Legal uncertainty and waves of layoffs have also eroded market confidence in the government's ability to finance programs amid rising debt payments.

"BI said there was a flow of funds to emerging markets, but the rupiah continued to experience pressure. This means that there are domestic problems that are more dominant, not external factors," said Fadhil.

He estimated that the rupiah exchange rate in the short term would still be under pressure, unless BI took significant market operations to maintain stability. However, in the medium term, pressure on the rupiah will continue due to external and domestic factors.

On the other hand, the current account deficit in 2024 will widen fourfold compared to 2023 to US$8.85 billion or equivalent to 0.6 percent of gross domestic product (GDP). In fact, the International Monetary Fund (IMF) estimates that Indonesia's current account deficit will widen by 2 percent in 2025 and to 1.4 percent in 2029.

According to Fadhil, the widening of the current account deficit in the future will have an impact on the weakening of the rupiah, especially if foreign exchange outflows are greater than foreign exchange inflows. In other words, foreign investment or foreign loans are needed to cover the deficit.

"So, there must be reform of various policies to increase market trust and confidence in short and medium term issues," he said.