Rupiah Continues to Weaken Against US Dollar on February 11, 2025: What’s Driving the Decline?

 Rupiah Continues to Weaken Against US Dollar on February 11, 2025: What’s Driving the Decline?

February 11, 2025 

The Indonesian rupiah faced another setback in today's trading session, opening at IDR 16,357 per US dollar, marking a slight depreciation. The ongoing weakening trend is largely attributed to external pressures, particularly the impact of the latest economic policies implemented by the United States. Analysts warn that if this trend continues, it could have significant consequences for Indonesia’s economic stability.

Why Is the Rupiah Weakening?

Several key factors are contributing to the continued decline of the rupiah, with most of them tied to global economic shifts, particularly those stemming from the United States:

1. US Monetary Policy Tightening

The US Federal Reserve’s decision to maintain high interest rates to combat inflation has significantly strengthened the US dollar. As a result, investors are shifting their assets to dollar-based investments, leading to capital outflows from emerging markets, including Indonesia. The Federal Reserve’s recent stance on maintaining a restrictive monetary policy has increased demand for the greenback, leaving the rupiah and other regional currencies under pressure.

2. Strengthening US Economic Indicators

The release of strong US economic data, including better-than-expected job growth and a resilient labor market, has reinforced market confidence in the US dollar. This has made the greenback more attractive to investors, reducing demand for other currencies, including the rupiah. Additionally, positive consumer spending trends in the US have raised expectations that the Federal Reserve may keep interest rates higher for a longer period, further weakening the rupiah.

3. Rising US Bond Yields

The increase in US government bond yields has further fueled demand for the dollar. Investors are choosing US Treasury bonds as a safe-haven asset, which in turn leads to capital outflows from emerging markets like Indonesia. The widening interest rate gap between the US and Indonesia has made the rupiah less attractive to foreign investors, accelerating its depreciation.

4. Global Market Uncertainty

Geopolitical tensions and uncertainties in global markets, including ongoing conflicts and trade disputes, have also contributed to currency fluctuations. Investors tend to flock to the US dollar during uncertain times, weakening emerging market currencies like the rupiah. The global oil price volatility and concerns over economic slowdowns in key trading partners such as China have also added to the rupiah’s struggles.

How Does This Affect Indonesia’s Economy?

The depreciation of the rupiah has both short-term and long-term implications for Indonesia's economic landscape. Here are some key areas that could be affected:

1. Higher Import Costs and Inflation Risks

A weaker rupiah makes imported goods and raw materials more expensive. This is particularly concerning for industries that rely heavily on imported components, such as manufacturing and automotive sectors. The increased cost of imports could lead to inflationary pressures, making everyday necessities more expensive for consumers.

2. Burden of Foreign Debt Payments

Indonesia, like many developing countries, holds a significant amount of foreign-denominated debt. When the rupiah weakens against the US dollar, the cost of repaying these debts increases. This could put additional pressure on government finances and corporate borrowers who have US dollar liabilities.

3. Boost for Indonesian Exports

On the positive side, a weaker rupiah makes Indonesian exports more competitive in the global market. Sectors such as palm oil, coal, and textiles could benefit from the currency depreciation as their products become cheaper for foreign buyers. This could help improve Indonesia’s trade balance in the long run.

Bank Indonesia’s Response: Can the Rupiah Be Stabilized?

To mitigate excessive fluctuations in the rupiah, Bank Indonesia (BI) has been actively intervening in the foreign exchange market. The central bank has assured the public that it is prepared to take further measures, including:

• Stabilizing the currency through market interventions by selling US dollars when necessary.
• Adjusting interest rates strategically to attract foreign investments back into Indonesia.
• Coordinating with the government to ensure fiscal policies support economic stability.

Despite these efforts, analysts believe that the rupiah’s movement will largely depend on external factors, particularly the trajectory of US monetary policy and global economic conditions.

What’s Next for the Rupiah?

Economic experts predict that the rupiah could face continued pressure in the coming weeks, especially if the US Federal Reserve maintains its aggressive stance on interest rates. However, Indonesia’s solid economic fundamentals, strong foreign exchange reserves, and government initiatives to boost investment confidence could help cushion the impact.

For businesses and individuals, financial experts advise adopting risk management strategies, such as hedging against currency fluctuations and diversifying investments. While short-term volatility remains a concern, long-term stability will depend on how well Indonesia navigates external economic challenges.

As global markets continue to shift, all eyes will be on Indonesia’s financial authorities and their next moves in response to the rupiah’s performance. Will Bank Indonesia’s interventions be enough to halt the decline? Or will further depreciation force more drastic economic measures? Only time will tell.