Jakarta. Indonesia’s rupiah sank to a record low of Rp 18,183 per US dollar on Wednesday, with mounting fiscal risks and investor doubts adding to global pressures and leaving the central bank battling to contain the currency’s slide.

Rupiah closed at Rp 18,184 per dollar in the domestic market, weakening 28 points or 0.15% from Tuesday’s close of Rp 18,156. Bank Indonesia’s Jakarta Interbank Spot Dollar Rate (JISDOR) stood at Rp 18,183 per dollar, also marking a record-low closing level.

Bank Indonesia (BI) pledged to remain active in financial markets to stabilize the currency, as uncertainty over the Middle East conflict kept global oil prices above $115 per barrel and heightened concerns over Indonesia’s fiscal outlook. Expectations of higher US interest rates have also strengthened the dollar and encouraged investors to move funds away from emerging markets.

Erwin Gunawan Hutapea, head of BI’s Monetary Management and Securities Department, said the rupiah’s movements remained broadly in line with regional currencies. The currency weakened 1.15% over the month, while Indonesia’s foreign exchange reserves stood at $146.3 billion at the end of September.

BI has continued intervening through spot foreign exchange transactions, offshore non-deliverable forwards (NDFs) and domestic non-deliverable forwards (DNDFs). It has also purchased government bonds in the secondary market.

“BI continues to remain present in the market to ensure that market mechanisms function properly and that the rupiah remains stable in line with its fundamentals,” Erwin said in a statement on Wednesday.

However, domestic concerns have added to the pressure. Uncertainty over a potential downgrade of Indonesia’s stock market classification by global index provider MSCI, rising bond yields and increased demand for foreign currency toward month-end have weighed on market sentiment.

Reyhan Noor, senior analyst at Laboratorium Indonesia 45, said the rupiah’s depreciation reflected investor concerns over domestic policy responses that had failed to keep pace with mounting global economic pressures.

“The main issue is that the fiscal burden is already considered too heavy, leaving increasingly limited room to maneuver,” Reyhan said.

He argued that continued quasi-fiscal operations intended to buy the government time and fiscal space could further erode investor confidence if they were seen as evidence of diminishing capacity to manage the country’s finances.

Reyhan also cited Fitch Ratings’ findings of a $32 billion net short foreign exchange position, which he said pointed to constraints on the central bank’s ability to intervene. The implications of that position depend on the underlying foreign exchange exposures and how they are measured.

Energy Costs Add to Fiscal Risks
Reyhan estimated that elevated oil prices had added Rp 148 trillion ($8.17 billion)  to the budget deficit, although the burden had yet to be fully reflected in the government’s fiscal accounts because state-owned oil and gas company Pertamina still needed to submit its claims following an audit by the Supreme Audit Agency (BPK).

Once those claims are realized, he said, the government could face further fiscal pressure.

“One of the worst-case scenarios for the government may be cutting spending on priority programs, but that could actually be the best-case scenario for safeguarding the economy at this point,” Reyhan said.

The rupiah’s depreciation is also raising costs for companies that rely on imported raw materials, machinery, technology or dollar-denominated debt, said Anggawira, chairman of the Indonesian Association of Energy, Mineral and Coal Suppliers (Aspebindo).

Companies with export earnings or currency hedges have some protection, but businesses serving the domestic market may struggle to pass higher costs on to customers, squeezing profit margins and cash flow.

“The issue is not simply the rupiah reaching a certain level, but how quickly it changes and how long the pressure lasts,” Anggawira said.

He added that prolonged depreciation and high volatility could force companies to revise budgets, procurement schedules, inventory plans and capital expenditure. Investment could also be delayed as the cost of imported machinery and expected returns become harder to calculate.

“There is no single exchange rate that automatically forces every company to cut production or jobs,” he said, adding that more drastic decisions would generally depend on how long the depreciation lasted and whether it coincided with weaker demand and higher financing costs.

Economists Warn of a Fiscal Feedback Loop
Wijayanto Samirin, an economist at Paramadina University, said domestic factors were playing a significant role in the rupiah’s weakness, including concerns over a potential MSCI downgrade, the government’s response to the issue, mounting fiscal risks and uncertainty surrounding investment policies.

“Our problems go beyond monetary policy. They concern fiscal conditions and a deteriorating investment climate. BI’s policies can only temporarily contain rupiah volatility and will not be effective in the long term,” Wijayanto told Investor Daily on Wednesday.

A prolonged depreciation could erode purchasing power as imported inflation pushes up domestic prices. While subsidies and social assistance could cushion the impact, Wijayanto said the government’s limited fiscal capacity would make such support difficult to sustain over an extended period.

He also warned of a potential triple deficit involving the fiscal balance, current account and primary balance, which could reinforce pressure on the rupiah and government finances.

“Government bond yields could continue to rise, debt costs could increase, the deficit could widen further and the rupiah could weaken even more. Hopefully, this does not happen because the government manages to anticipate these risks,” he said.

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