The Indonesian rupiah fell to a new record low against the U.S. dollar in mid-May 2024 [1].
This currency devaluation threatens to increase the cost of imports and pressure the national economy, forcing the central bank to take aggressive measures to prevent further instability.
Bank Indonesia responded to the slide by increasing its key policy rate by 50 basis points [2], bringing the rate to 5.25% [1]. Governor Perry Warjiyo said the central bank would use all available monetary policy tools to stabilize the rupiah [3].
The currency has experienced a year-to-date depreciation of around five% [1]. Reports on the exact record low vary; one source cited a level of 17,090 IDR per USD [4], while another reported the low reached 17,600 IDR per USD [1].
Several global factors contributed to the volatility. Geopolitical tensions, specifically the war in Iran, alongside rising oil prices and a general risk-off sentiment among investors, pressured the currency [1, 4].
President Joko Widodo downplayed the immediate impact of the currency's decline on the general population. He said the economy is strong and the currency's slide will not affect villagers because they do not use dollars [5].
Despite the president's optimism, Bank Indonesia continues to intervene in the foreign-exchange market. A spokesperson for the bank said stability is the top priority [6].
“"We will use all available monetary policy tools to stabilize the rupiah."”
The rupiah's record decline reflects a vulnerability to external shocks, particularly in the energy sector and Middle Eastern geopolitics. While the Indonesian government argues that rural populations are insulated from currency fluctuations, the central bank's decision to hike rates suggests a critical need to attract foreign capital and prevent capital flight, which could otherwise lead to broader inflationary pressures across the domestic economy.
