Jakarta. Rising yields on US government bonds are strengthening the dollar and adding further pressure on the rupiah, which weakened beyond Rp 17,700 per US dollar on Tuesday, an economist said.

“The US dollar remains strong because yields on 10-year US Treasury bonds have risen to around 4.60%, while oil prices also remain elevated due to the Iran conflict and risks to global energy supplies. Under these conditions, global investors tend to reduce exposure to emerging-market assets and move toward safer assets,” said Josua Pardede, chief economist at Permata Bank.

According to Josua, domestic factors are also amplifying pressure on the rupiah as investor sentiment toward Indonesian assets deteriorates.

The rupiah’s weakness has coincided with a sharp decline in Indonesian equities, with the Indonesia Stock Exchange recently becoming one of the weakest-performing stock markets in the region.

Josua added that markets have also reacted negatively to speculation surrounding the possible creation of a special government agency to regulate exports of strategic commodities such as coal, crude palm oil, and minerals.

“For investors, issues like this increase concerns about policy direction because commodities play a major role in export earnings, rupiah stability, and foreign exchange reserves. At the same time, the government is offering new foreign-currency bonds while Indonesian assets are already under pressure and rating agencies have previously revised Indonesia’s outlook to negative,” he said.

“So today’s pressure on the rupiah is not only because of a strong dollar, but also because markets are demanding a higher risk premium for Indonesia,” Josua added.

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