The Indonesian Rupiah (IDR) has depreciated sharply, with the USD/IDR exchange rate reaching a new record high above 18,000, according to Brown Brothers Harriman’s (BBH) Elias Haddad [1]. Simultaneously, the Jakarta Stock Exchange Composite Index has fallen to its lowest level since November 2020 [1]. This market turmoil is attributed to several factors, most notably the Indonesian parliament's passage of legislation that expands Bank Indonesia’s (BI) mandate to include explicit support for economic growth and job creation, in addition to its traditional focus on price and financial stability [1].
Haddad notes that this legislative change could shift BI’s policy priorities toward supporting President Prabowo's ambitious 8% real GDP growth target, potentially at the expense of inflation control and currency stability [1]. The market is also reacting to the risk of a potential MSCI reclassification and increased caution from debt rating agencies, both of which have contributed to the underperformance of the IDR and Indonesian equities year-to-date [1].
Further exacerbating the situation is an energy supply disruption caused by a blockade in the Strait of Hormuz, through which approximately 25% of Indonesia’s crude oil imports pass. As a net crude oil importer, Indonesia is particularly vulnerable to such shocks, which have intensified the financial market pressures [1].
Despite the IDR’s current undervaluation relative to domestic fundamentals, BBH’s analysis concludes that the currency will likely remain under downside pressure until the energy shock subsides [1].
CONCLUSION
The Indonesian Rupiah and equities have come under significant pressure due to policy changes affecting Bank Indonesia’s independence and an external energy shock. Market sentiment remains negative, with further downside expected until the energy situation stabilizes and policy concerns are addressed.