Beware of Rupiah Fluctuations Ahead, Market Sentiment Must Be Maintained

JAKARTA, KOMPAS — Global uncertainty along with the implementation of tariff policies by the United States has caused the movement of the rupiah exchange rate to tend to fluctuate. The availability of foreign exchange in the domestic financial system will determine market confidence in maintaining exchange rate stability.

Based on data from the Jakarta Interbank Spot Dollar Rate (Jisdor), the exchange rate of the rupiah on Thursday's trading (6/3/2025) closed at the level of Rp 16,315 per US dollar. Over the past two weeks, the rupiah has fluctuated, reaching a level of Rp 16,575 per US dollar during trading on February 28, 2025.

Head of the Monetary Management Department of Bank Indonesia (BI) Edi Susianto said that the exchange rate in the global market is moving very volatile due to global dynamics, such as tariff policies and the direction of US interest rate policies. This also has an impact on the movement of the exchange rate of developing countries (emerging markets) in Asia.

"If in the past few days the exchange rate movement, especially in emerging Asian markets, strengthened against the US dollar, today several emerging Asian market currencies weakened against the US dollar," he said when contacted from Jakarta, Thursday (6/3/2025).

In responding to these conditions, Edi continued, the most important thing to do is to maintain the level of market confidence. This effort is carried out by maintaining a balance between the need and availability (supply-demand) of foreign exchange (forex).

Therefore, BI will continue to ensure the balance through triple intervention. The three interventions are carried out, both in the spot market, the domestic non-deliverable forward (DNDF) market, and by purchasing government securities (SBN) in the secondary market.

"Efforts to keep capital inflows happening are also important to increase foreign exchange supply in the market. In addition, communication with market players continues to be carried out," said Edi.

Based on transaction data from February 24-27, 2025, non-residents recorded a net sell of IDR 10.33 trillion in the domestic financial market. This includes a net sell of IDR 7.31 trillion in the stock market, IDR 1.24 trillion in the government bond market, and IDR 1.78 trillion in Bank Indonesia Rupiah Securities (SRBI).

As a result, from the beginning of 2025 until February 27, foreign investors in the domestic financial market have recorded an inflow of Rp 5.06 trillion. This consists of a net sell of Rp 15.47 trillion in the stock market, as well as a net buy of Rp 12.86 trillion in the government bond market (SBN) and Rp 7.67 trillion in the short-term government securities market (SRBI).

Similarly, BI's Director of Monetary and Securities Asset Management Department Triwahyono said that although the rupiah exchange rate has solid fundamentals, the US tariff policy has caused the exchange rate to fluctuate like a rollercoaster. This situation is expected to occur over the next four years.

He explained that the weakening of the rupiah that occurred quite deeply to penetrate Rp 16,500 per US dollar a few days ago was also influenced by foreign investor sentiment. Previously, Morgan Stanley Capital International (MSCI) issued recommendations for investment assets in Indonesia with an underweight rating level or low performance so that foreign capital flows out of the domestic financial market, especially the stock market.

Business actors hope that the rupiah currency will be similar to the currencies of other ASEAN countries, which are not overly swayed by the fluctuations of the US dollar. Business actors are also weary of voicing concerns and devising strategies to cope with the rupiah's fluctuations.

Subsequently, the situation shifted slightly when JP Morgan released an assessment result that upgraded the ratings of several banking sector stocks in Indonesia. This recommendation also led to a renewed inflow of foreign investor capital into the domestic financial market.

"That (JP Morgan) made the situation finally turn around, including today, the stock market in Indonesia experienced a fairly high rebound. This then also had an impact on the rupiah because it was driven a lot by foreign behavior in stocks," Triwahyono said in a media briefing in Jakarta.

Facing exchange rate fluctuations, the Chairman of the National Association of Indonesian Importers (GINSI), Subandi, stated that import business actors have resigned themselves to the volatile ups and downs of exchange rates, which are difficult to anticipate.

According to him, all sectors will certainly be affected by the fluctuation of the rupiah exchange rate against the US dollar and other foreign currencies. Business actors hope that the rupiah can move stably so that it does not affect business operations.

"Business actors hope that the rupiah currency is the same as other ASEAN countries' currencies that are not too fluctuating with the fluctuations of the US dollar. Business actors are also tired of voicing and working around the fluctuations of the rupiah currency," he said when contacted from Jakarta.

Contacted separately, Bank Danamon Indonesia economist Hosianna Evalita Situmorang explained that the trade war between the United States and China has created new dynamics in global trade, including the Indonesian economy. This tension has made export performance and current transactions challenging, while opening up opportunities to strengthen competitiveness and attract new investment.

"In facing these changes, flexibility of economic policies and market diversification strategies are key to maintaining macroeconomic stability and the resilience of Indonesia's external sector," he said when contacted from Jakarta.

Hosianna explained that the trade war during the first term of Donald Trump's leadership (Trump 1.0) as US President in 2016–2019 had caused depreciation of the exchange rates in most Asian countries. Although the rupiah was under pressure, the weakening was not as deep as other countries' currencies so that sentiment was still under control.

On the other hand, BI estimates that the current account deficit in 2025 will remain within safe limits in the range of minus 0.5-1.3 percent of gross domestic product (GDP) along with the continuing surplus of capital and financial transactions. Reflecting on previous experience, national exports in Trump 1.0 were able to continue to grow so that export resilience can continue to be maintained.

With solid domestic economic fundamentals and growth prospects remaining strong, the rupiah exchange rate is expected to move in the range of Rp16,100–Rp16,600 per US dollar in 2025.

According to Hosianna, currency depreciation due to global sentiment must still be anticipated. In addition, currency war or the tendency to weaken currencies strategically can be an instrument to maintain export competitiveness, especially as a counter to the imposition of tariffs in the destination country.

"With solid domestic economic fundamentals and growth prospects that remain strong, the rupiah exchange rate is expected to move in the range of Rp16,100–Rp16,600 per US dollar in 2025," he said.

On the other hand, DBS Bank Senior Economist Radhika Rao estimates that general inflation in 2025 will fall again below BI's target of 1.5-3.5 percent. DBS Group Research also revised down its annual inflation forecast in 2025, from 2.2 percent to 1.2 percent.

"BI will consider various objectives. The deflationary trend indicates the urgency to lower interest rates, but the rupiah remains vulnerable to US dollar movements, continuing to maintain its position in the underperforming region with a decline of minus 2.3 percent in the current calendar year," he said in a written statement, Wednesday (3/5/2025).

Although the current account deficit in Q4-2024 narrowed to 0.3 percent of GDP, the current account deficit throughout 2024 widened to 0.6 percent of GDP. This widening was caused by a shrinking goods trade surplus, a widening primary income gap, and a widening services deficit.

Overall, the balance of payments surplus will reach US$7.2 billion in 2024, higher than US$6.3 billion in 2023. This increase is driven by increased foreign direct investment (FDI), external financing programs, and positive portfolio flows.

"The central bank projects the current account deficit in 2025 to be in the range of minus 0.5-1.3 percent of GDP, with DBS Group Research's estimate being in the middle of that range. The stability of the external trade balance is a positive factor for rupiah assets," he said.

However, BI has expressed its commitment to buy Rp130 trillion worth of bonds to finance the government's housing stimulus program this year. This has raised concerns about de facto debt monetization.