By KUSNANDAR & CO.,
Attorneys at Law – Jakarta, INDONESIA
The Indonesian rupiah has once again come under
pressure. On Wednesday, September 24, 2025, the rupiah opened lower at Rp16,670
per US dollar, following a 0.36 percent decline the previous day. This marks
its weakest level since April 2025 and signals a critical moment for assessing
the country's economic resilience.
Ironically, this depreciation occurred at a time when
the US dollar index (DXY) has shown signs of weakening for two consecutive
days. With global markets pricing in the possibility of two more rate cuts by
the US Federal Reserve before the end of the year, risk assets in emerging
markets should have had room to rebound. Yet the rupiah has failed to
capitalize on this shift—an indication that deeper, structural issues may be at
play.
Indeed, while global monetary uncertainty continues to
drive volatility, the underlying causes of the rupiah's weakness appear more
complex. Fed Chair Jerome Powell has maintained a cautious tone, emphasizing
the need to balance persistent inflation with signs of labor market softening.
He has warned against premature easing, which could reignite inflation, while
acknowledging that excessive tightening could damage employment prospects. This
policy ambiguity has led to market hesitance, especially toward emerging
markets perceived as vulnerable.
For Indonesia, this hesitancy reflects not only
external dynamics but also domestic concerns. The current account deficit has
widened over the past two quarters, pointing to persistent reliance on external
financing. Export performance remains weak, weighed down by falling global
commodity prices. Meanwhile, fiscal uncertainty toward the end of the budget year
has raised investor concerns over macroeconomic management.
The implications are far-reaching. Currency
depreciation increases the risk of imported inflation, especially in energy and
food sectors. Although Bank Indonesia has so far managed to keep inflation
within target, prolonged rupiah weakness could force it to maintain high
interest rates for longer, putting pressure on business lending and investment.
Additionally, government and corporate debt denominated in US dollars becomes
more expensive, straining fiscal space and liquidity—especially for private
firms lacking sufficient hedging strategies.
However, this moment of pressure can also be viewed as
a necessary corrective. Indonesia cannot continue to depend on global
tailwinds—such as commodity booms or capital inflows—to stabilize its currency.
Economic resilience must be built from within. Structural reform is essential:
boosting value-added exports, improving fiscal efficiency, and ensuring
regulatory certainty are all urgent priorities. Moreover, economic policy
credibility must be maintained to strengthen investor confidence during periods
of global turbulence.
Bank Indonesia has already exercised disciplined
monetary and macroprudential policy. But the burden of defending the rupiah
cannot rest solely on the central bank. A coordinated policy response—fiscal,
industrial, and trade-related—is critical. The recent depreciation should serve
not as a crisis, but as a reflection of what still needs to be done to build a
more competitive and shock-resistant economy.
This is not the first time the rupiah has weakened,
and it likely won't be the last. But if this episode is treated merely as a
symptom of global volatility, we risk ignoring the deeper issues. On the other
hand, if seen as an opportunity for structural correction, it could lay the
foundation for a more sustainable and self-reliant economic future.
K&Co - September 24, 2025.
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