Jakarta. Rupiah strengthened slightly on Wednesday after briefly slipping past Rp 17,400 per US dollar, but economists warned the currency remains vulnerable as surging oil prices and escalating tensions in the Middle East narrow Indonesia’s fiscal room for maneuver.

The rupiah opened 35 points higher, or 0.20%, at Rp 17,389 per US dollar on Wednesday morning and later closed up 36 points at Rp 17,387, recovering from the previous close of Rp 17,424.

However, analysts expect the currency to remain volatile on Thursday.

“For tomorrow’s trading, the rupiah is expected to fluctuate but close weaker in the range of Rp 17,380 to Rp 17,420 per US dollar,” Ibrahim Assuaibi, director of Traze Andalan Futures, said in a statement on Wednesday.

According to Permata Bank Chief Economist Josua Pardede, the rupiah’s recent weakness does not signal an economic crisis, but reflects mounting external pressures that are beginning to tighten Indonesia’s fiscal safety buffer.

The main trigger, Josua said, is the escalating geopolitical tension in the Persian Gulf involving the US and Iran, which has boosted demand for the dollar while driving Brent crude prices as high as $115 per barrel.

“This rupiah depreciation is indeed heavily driven by external pressure from the Middle East,” Josua said on Wednesday.

Indonesia remains particularly exposed because of its dependence on imported energy. Higher oil prices increase demand for US dollars to finance fuel imports, widen current account risks, and raise concerns over rising energy subsidies and compensation costs in the state budget.

Permata Bank estimates that every 10% increase in oil prices could add around Rp 97 trillion ($5.6 billion) to Indonesia’s energy subsidy burden and reduce the current account balance by 0.12% of GDP.

Domestic fiscal conditions have also amplified market sensitivity after Indonesia’s budget deficit widened to 0.93% of GDP, or around Rp 240.1 trillion, by the end of March 2026. The situation was further weighed down by Fitch Ratings and Moody’s revising Indonesia’s outlook to negative, citing concerns over fiscal credibility.

The combination of rising oil prices and a weaker rupiah has made investors more cautious amid fears that fiscal pressures could intensify further.

Still, Josua stressed that Indonesia’s economic fundamentals remain resilient, pointing to first-quarter 2026 economic growth of 5.61%.

“The narrative is not that Indonesia’s economy has become fragile, but rather that policy space is becoming narrower, meaning fiscal management must be more disciplined and targeted,” he said.

“In that context, rupiah depreciation is understandable because oil-importing countries tend to come under pressure when global energy prices surge.”

On the monetary side, Josua said Bank Indonesia’s decision to maintain its benchmark interest rate at 4.75% was appropriate to preserve stability and keep inflation within its target range. The central bank has also continued intervening in the market while reiterating that the rupiah remains undervalued relative to its fundamentals.

However, he warned that BI intervention alone would not be enough if global pressures continue to intensify.

“The market needs to see that the government has a clear roadmap for dealing with high oil prices and a weak rupiah,” Josua said.

He added that the government must ensure energy subsidies remain under control, accelerate export foreign exchange inflows, maintain energy supply stability, and reduce reliance on fuel imports.

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